IRMI Update—Issue #109
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
March 22, 2005
In This Issue
Colleague,
I'd like to thank the risk managers and others who responded to my last editorial
with their thoughts on the optimal reporting structure for the risk management
department. You can read their insightful comments below.
Last week IRMI launched a new online continuing education program that I
am very excited about. The Construction Risk and Insurance Specialist (CRIS)
continuing education program is designed for insurance agents, brokers, and
underwriters, as well as for those within construction companies who are responsible
for buying insurance.
The CRIS continuing education curriculum consists of five courses that are
presented entirely through the program's web site. Those who complete the curriculum
are entitled to display the CRIS designation to certify their knowledge of construction
insurance. With a basic charge of only $49 per course, the CRIS program is quite
affordable, and for just $10 more, insurance CE credit is also available in
many states.
The self-paced courses and their final exams may be taken from any computer
with Internet access. WebCE's state-of-the-art Internet system is the Web delivery
platform for the program. This proven platform served up more than 175,000 insurance
courses last year.
I hope you will consider the CRIS designation for yourself or your staff.
You will find an in-depth explanation of the CRIS program here.
Of course, we're also excited about presenting another round of seminars
on captive insurance with Kate Westover as seminar chair. In the "Captive Choice"
Kate will give you practical advice on how to determine if a captive is the
right choice for your company or your clients. We're so confident in Kate's
knowledge and presentation skills that we don't hesitate to offer you a refund
of the seminar fee (less out-of-pocket costs for meals and such) if you are
disappointed in the program. Find out more about this great seminar.
Thank you for subscribing to IRMI Update.
Have a great day.
Jack
Jack P. Gibson, CPCU, ARM
President
IRMI
Workers Compensation Financial Incentive Program—Many
insureds with exposure in Washington State are unaware of the workers compensation
financial incentive program offered by the Washington State Department of Labor
and Industries to help employers reduce their insurance costs. Retrospective
rating programs (retros) offer financial incentives to employers in order to
reduce their industrial insurance costs and help control worker compensation
costs. Enrolling in a retro program makes good financial sense for employers
who are committed to keeping workers' compensation costs low.
In Washington State, accepting a Retro is the only funding option that provides
a refund for success in controlling losses. More than 55 associations and professional
organizations sponsor group retro programs here. Members of a group retro may
receive premium refunds or be given additional, performance-based premium.
Retro programs offer many advantages that employers enjoy. A key advantage
regarding calculating retrospective premium is that only claims with a date
of injury within the Retro coverage period are considered.
There are more than 55 organizations sponsoring retro groups in Washington
State. When selecting a group Retro, consider the experience and techniques
used to mitigate claims, get workers back to work, and provide professional
risk consultation to lower claim costs and respectively lower future premiums.
It's also important to view previous year results to ensure you are enrolling
in a Retro group that has been successful in its efforts to mitigate claims
costs, resulting in a favorable refund.
While most Washington employers participating in a retro do so in a group,
individual retro programs are also available.
For more information regarding Washington State Retro go to their web
site.
By: Mike Sotelo
President
Approach Management Services
Seattle
msotelo@approachms.com
www.approachms.com
Suggest a Risk Tip. Send us a practical tip (less than 300 words) for identifying and managing risks,
buying insurance, managing claims, or filling gaps in insurance coverages. Submit your tips. We'll
acknowledge your contribution as we did for Mike.
There are now 642 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
IRMI is in the process of updating our annual Professional Liability Market
Directory. The directory listing is provided as a service to our readers and
at absolutely no cost to you. If you are a direct source for professional liability
coverage (e.g., insurer, managing general agent), you and your firm can have
a no cost listing in the Professional Liability Insurance Market Directory.
Simply complete the appropriate information in the Market Listing form.
In IRMI Update 108, Jack Gibson discussed
the question of who risk managers should report to: vice presidents, CEOs, CFOs,
COOs. Below are a few of the responses received.
-
I believe Mr. Julien is on to something here. Twenty-first century risk
management is moving toward an enterprise operations model which entails
interfacing with cross-sectional departments. Consequently, the risk manager
must not be more tied to one department than another because of a reporting
structure matrix. The risk manager, like the COO, needs to have a broad
perspective of the business operations so that he/she can develop and implement
good risk control programs, without a bias, to his direct report.
—Dwight Garner, VP Risk Management Services, Setnor
Byer, Plantation, Florida
-
Our "risk manager" was titled Corporate Safety Officer. He did a great
job and our losses went down. However, even though he reported directly
to me, he had to deal with four branch managers/VPs. I recently made him
"VP/Safety" and a corporate officer so he is on an "equal level" with the
other managers. I believe it also garners him more respect with our field
forces and it makes our customers better realize how important safety is
to us. By the way, we have about 20 calendar days to go and we'll have a
complete year and about 375,000 hours without any insurance claims.
—Richard "Jake" Jakowsky, President/CEO, Anderson
Electric, Inc., Springfield, IL
-
The optimal RM Department reporting structure is difficult to define
and can vary with the size and scope of the business operation. While I
agree in general [and yes our Division of Risk Management does report to
our COO], the wrong reporting relationship can certainly undermine the RM
department's effectiveness. In smaller organizations, the RM may need to
report to the president or owner, because as was said, every silo of an
organization is touched by risk management and therefore there exists the
potential for special interests and conflicts by individual departments.
Risk management affects the overall business operations, therefore having
it report through HR, treasury, finance, or the general counsel is in most
cases a formula for failure. My job description is simple: "protect and
minimize the risk of the District's operations and assets." In our organization
of 100,000 employees and 900,000 students, my RM staffers cross swords almost
daily with someone—with risk management reporting to the COO, that alone
solves many of those issues. Because of that reporting relationship, very
few issues ever make it to the COO level—we tend to work through them outside
of his office.
—Steven A. LaShier, Deputy Director Risk Management,
Los Angeles Unified School District, Los Angeles
-
As to who or whom we (risk management function) should report to ...
I'd rather reverse the process and say who or whom we shouldn't report to.
In my 28 years, I have reported to CFOs, CEOs, COOs, general counsels, and
chief human resource executives. The preference in my view is CEO, CFO,
and COO in that order. And the least desirable is the chief human resource
executive. My reasoning is simple, it is far better to team up with the
HR function as opposed to reporting to it. Their perspective is toward "providing"
for the employees, and risk managers need to be focused more globally in
protecting all resources but not in an entitlement role.
—Wayne Salen, Risk Manager, IPC, Miami
-
The risk manager must, above all, be a tough-minded individual able to
communicate because the task at hand is, in large part, selling the concept
of risk management to VP-level peers. The VPs are paid to grow revenue,
the risk manager is paid to prevent/limit loss. There is a healthy tension
here which, in the end, serves the organization best. If the risk manager
isn't getting results, then find a risk manager tough enough for the job.
Investing more authority in an essentially weak player will only foster
the wrong kind of stress within the organization—and make life even more
difficult for the risk manager.
—Thomas Bobrowski, Producer, Rothschild Agency, Merrillville,
IN
-
While reporting to the COO versus a VP may have its advantages, I would
not get too caught up in trying to fight this issue. As an alternative for
those who report to the CFO or some other VP or executive, require the input
from other executives forming a Risk Management Committee. This is an effective
way of driving risk management issues from the top. Ensure that you get
buy-in from the CEO and recommend that he/she formally write an appointment
letter to each member of the committee. At a minimum, meetings should be
held quarterly and on a needs-be basis. The risk manager should be responsible
for drafting the committee's terms of reference, convening the meetings,
and setting the agenda for each meeting. The committee would be relying
on the risk professional to lead the risk management program, while he/she
would be relying on the committee for approving policy and procedures and
generally supporting the risk management effort.
—Randall Mohammed, Risk Manager, TSTT, Port of Spain,
Trinidad
-
My experiences show that the biggest internal conflict that a risk manager
faces in his/her company is with operations. It is an inherent conflict.
Reporting to the chief operating officer often results in the COO overruling
or not following risk suggestions. This is because many things that a risk
manager needs done APPEAR to have a negative effect on operations. A risk
manager should report to the CEO or whoever is the highest corporate officer.
If the COO is the highest officer, then there should be regular meetings
of all corporate officers where the risk manager can report to all. Operations
then will see the impact on all corporate functions.
—Frank Keres, President, Construction Risk Associates,
Inc., Brookfield, WI
-
The most egregious misuse/misplacement of a risk manager I have seen
is when a CFO is in charge of the "placement" of insurance coverage, and
the risk manager is not involved in evaluating proposed forms because he
or she does not work with the CFO. I cannot see any possible way a risk
manager can do an effective job when a CFO can purchase insurance based
on the least expensive premium, without the risk manager's input as to the
knock-on effects of diminished coverage, poor company stability, or claims-handling,
etc. I've seen this in hospitals more than once.
Does it mean the risk manager should report to the CFO? Or does it mean
the CFO should not be in charge of selecting insurance programs?
—Chris Christian, Sr. Vice President, London American
General Agency, Inc., San Diego
-
We came to the same conclusion as Mr. Julien in our construction contractor
company. Since risk management touches every department in the company,
the risk/insurance/safety department reports to the president and CEO. Anything
less could place the risk manager in a position of "serving two masters."
—Kent Straszewski, Risk Manager, KHS&S Contractors,
Anaheim, CA
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