2007 RIMS Conference Attendees Focus on the Issues
May 2007
With a relatively calm insurance marketplace
and less choppy waters with respect to brokerage relationships post-Spitzer,
risk managers focused on the major issues and challenges of managing their organizations'
risks at the RIMS Conference in New Orleans this year.
by Jack P. Gibson
IRMI
RIMS President Michael Leibowitz did a good job summarizing some of the major
areas of focus in his opening speech:
- Business continuity planning
- Pandemic
- Globalization
- Quality
- Terrorism Risk Insurance Act (TRIA)
The numerous sessions focusing on these and other topics for the most part
seemed well attended this year. According to RIMS, its annual conference drew
more than 9,000 risk practitioners to New Orleans, and all in all, it was a
serious group focused on learning new ways to help organizations manage risk.
Pandemic Fatigue
In his keynote address Dr. Michael Osterholm, director of the Center for Infectious
Disease and Policy, discussed the certainty of the world facing another
pandemic. "It is going to happen. There is no alternative path."
He then presented compelling evidence to back up his statement by explaining
the epidemiology of influenza and showing the history of pandemics. Unfortunately,
the public doesn't understand the certainty of the fact that a pandemic will
occur. He says the only uncertainty is when it will occur, and that could be
this summer or in 20 years. News coverage of the pandemic risk peaked in 2005
and 2006, has been declining ever since, and people are generally not focused
on it today. He described this occurrence as "pandemic fatigue," and it is worrisome.
According to Dr. Osterholm, "We've done some things [to prepare], but most of
it is window dressing."
When the pandemic occurs, the best we can hope for is 2.0–7.5 million deaths
worldwide. If it resembles the 1918 Spanish flu pandemic, deaths could reach
180–360 million; worst-case scenarios are much higher. What this means is that
national governments and many institutions will be overwhelmed. For example,
hospitals are already filled to capacity and will not have beds for the sick.
They'll quickly run out of oxygen and other medical supplies to treat the ill.
Dr. Osterholm warns, "Every city, county, and person will be on their own."
In some respects, developed countries will fare worse than underdeveloped
countries simply because people are less self-sufficient and because of current
business practices. For example, a key cause of problems in the United States
and other highly developed nations will be the reliance of our businesses on
"just-in-time" supplies acquisition and production processes. In normal times,
these processes are more efficient and less costly, but the elimination of inventories
leaves little or no room for surges in demand or process breakdowns. Disruptions
from a pandemic may shut down vital transportation lines, while demand surge
for many products—such as food and medical supplies—quickly depletes inventories.
The responsibility for stimulating their employers, employees, and local
governments to continue preparing for a pandemic will fall on the backs of risk
professionals. This is important; make it happen in your organization (and in
your household).
Quality Services
RIMS leaders have focused on quality initiatives for a number of years and
continued that focus this year. In his conference opening, Mr. Leibowitz called
on risk managers to define their quality standards in service agreements with
their brokers and other vendors and to use financial incentives as motivation
to meet them. He says that the industry is ready and willing to engage in these
types of agreements, and the CEOs of major brokers affirmed his statement during
the Leadership Panel discussion.
My conversations with risk managers during the last 24 months show the growing
use of bonuses for issuing policies within stated periods of time after inception
and hitting other quantifiable benchmarks. If you are risk manager, give some
thought to how they might apply to your account. If you are an agent or broker,
proactively suggesting such arrangements could be a way to differentiate yourself
from the competition.
Other Issues
Globalization came through loud and clear as an issue for risk managers,
as evidenced by strong attendance in a number of sessions focused on the risks
of doing business in other countries, such as China. Additionally, insurers
introduced new products focused on political risks and providing blanket coverage
for international risks at the conference.
Though Mr. Leibowitz mentioned it as a top issue during his opening address,
there wasn't much other mention of TRIA during the week. Not one workshop focused
on TRIA or terrorism coverage, and only one focused on terrorism risk. Risk
managers seem to be taking it for granted that TRIA will be extended or a substitute
will be enacted. This type of complacency may lead to crises for 2008 renewals
when the make-available provisions of TRIA expire along with the rest of the
Act. Wise risk managers are preparing contingency plans for this possibility.
The RIMS leadership revealed a definite commitment to enterprise risk management
(ERM) at this year's conference. An ERM learning track that provided a workshop
during every time segment—18 sessions in all—focused on broadening the scope
of risk management beyond traditional insurance risk. This evidences a desire
among risk managers to advance the profession, but it seems a bit beyond the
majority of the risk managers who attend the conference. Nevertheless, it never
hurts to expand one's horizons, and these types of sessions can achieve that
purpose.
I was amazed at the overflow capacity crowd that filled the session on additional
insured issues and disheartened by the lack of knowledge about this and other
contractual risk transfer topics among the audience. At the risk of being self-serving,
with the in-depth materials available from IRMI in
Contractual
Risk Transfer and
The
Additional Insured Book, risk managers (or agents/brokers) have no
excuse for a lack of understanding of these topics. Risk professionals should
know by now why you don't ask for "additional named insured" status in a commercial
general liability (CGL) policy. Enough said.
And the Market Pendulum Swings
While certainly not the buzz of this year's conference, risk managers are
keenly aware of the softening insurance marketplace. Many have their sights
set on achieving rate reductions, particularly when their loss experience has
been superior. On the other hand, veteran risk managers are lamenting the industry's
inherent tendency to shoot itself in the foot with excessive price competition.
I sensed a true desire to find ways to establish long-term relationships that
would yield less excessive pricing swings in future years. However, there is
much skepticism about their ability to make it happen.
Summary
This was a relatively sedate and serious RIMS conference. In general, risk
managers seemed focused on their priorities, and there wasn't much excitement
in the air. That's probably a good thing.
Opinions expressed in Expert Commentary articles are those of the author and are
not necessarily held by the author’s employer or IRMI. This article does not purport
to provide legal, accounting, or other professional advice or opinion. If such advice
is needed, consult with your attorney, accountant, or other qualified adviser.