IRMI Update—Issue #46
An E-mail Newsletter for Risk and
Insurance Professionals
ISSN: 1530-7948
August 6, 2002
In This Issue
Colleague,
Last week we held the final seminar in our series on "Group Captives
and Other ART Solutions for the Middle Market." Given the current
state of the insurance market, the high interest in this topic was
no surprise. Nearly 200 people attended the three seminars, and
they gave the program rave reviews. Much of the credit goes to Kate
Westover of Captive Advisory Services, who designed the curriculum
and presented most of it. After working with Kate on her book,
Captives and the Management of Risk, and now the seminar,
I can tell you that she is a true professional and a fantastic communicator.
Of course, Bill McIntyre also contributed many practical insights
based on his experience as CEO of a mature and successful group
captive. Kate and Bill, on behalf of the attendees, thanks for the
great job!
The September 1 deadline for nominations for the Gary E. Bird
Horizon award (formerly the Construction Risk Management Best Practices
award) is fast approaching. If you are a risk professional who has
put together an innovative construction risk management program
or you know someone who is, consider entering for the award. Follow
this link
to learn all about the award, past winners, and how to be considered.
All of us at IRMI have begun gearing up for the 22nd IRMI Construction
Risk Conference, which will take place in San Diego this November.
We hope you are planning to join us. Drop by this section of our
website for more information.
Thank you for subscribing to IRMI Update. Please share this issue
with your colleagues and friends.
Have a great day.
Jack
Jack P. Gibson
President
IRMI
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Selecting Your Captive Insurance Company's
Domicile. Thanks to the hard market, premiums are on the
rise, coverages are being reduced, and some necessary coverages
are completely unavailable. So you are looking at captive alternatives.
Perhaps you will be forming a new one, reactivating a dormant captive,
or are considering re-domiciling your existing captive.
Following are some key issues to consider when choosing between
the various domiciles:
- Does the legislative and regulatory philosophy
demonstrate a commitment, and appreciation of captive
insurance companies?
- Is there adequate supporting infrastructure
in the domicile (i.e. captive managers, third-party
administrators, legal counsel, investment managers
and consultants, banking services, telecommunications,
captive insurance association, and access to air
transportation)?
- Is there flexibility for a captive to set its
rates without prior regulatory approval?
- What are the investment restrictions?
- How much are the premium taxes or other fees,
and what are the tax ramifications?
- Are any benefits of domiciling offshore outweighed
by the risk of appearing unpatriotic?
- And, last but not least, is it a pleasant, accessible,
and logical location for annual board meetings?
By: Jeremy Brown
MIMS International
Towson, Maryland
E-mail:
www.mimsintl.com
Suggest a Risk
Tip. Future issues of IRMI Update will include more risk
tips from our readers. Send us a practical tip (less than 300 words)
for identifying and managing risks, buying insurance, managing claims,
or filling gaps in insurance coverages. We'll give you credit for
your contribution.
There are now 317 articles on IRMI.com, and many more are in
production. Below you'll find summaries of some recent additions
with links to the articles.
-
Protecting the Balance Sheet—An uninsured
loss drains cash, the lifeblood of any business,
and erodes net worth. Rolf Neuschaefer explains
what surety underwriters are looking for from their
principals in the current market.
-
Political
Risk Insurance in Asia: Who Purchases It, Where,
and Why—Daniel Wagner examines how in
Asia it is the banks and their lending requirements
that are the real driving force behind the majority
of political risk insurance (PRI) purchases.
- MGAs and Reinsurance:
What Every Prudent Agent Needs To Know—In
today's market, it is critical that those involved
in the independent wholesale distribution segment
of the industry understand the role of reinsurance.
New AAMGA President Robert Giles explains.
-
A
Paradigm Shift to True Litigation Management—In
this new IRMI.com column, Michael Boutot discusses
litigation management and provides new ideas for
making business easier for all parties to the litigation
process.
-
The
Shackleton Approach: Effective Leadership Throughout
the Claims Process—Daniel Torpey relates
leadership lessons from a historical figure and
an executive facing disaster in discussing the complexities
of large insurance claims and the importance of
good leadership to effect smooth settlement.
Insuring Design-Build
Risks—Taking on responsibility for design in addition
to construction entails many new risks. This article examines the
potential liabilities facing design-builders and how they can be
handled. Also see IRMI's new book by the most knowledgeable practitioners
in the industry,
Design-Build
Risk and Insurance, which offers you their insight in
one handy, well-organized guide.
Check Out the CRC Agenda and Register
Online—The agenda for the 22nd IRMI Construction Risk Conference
is now available for viewing online. Check out the planned seminars
and workshops. Also register online. To register, just complete
the online registration form or call (800) 827-4242.
Reassessing Your Workers Compensation
Options? The Workers Compensation
Insurance Guide provides articles by experts outlining specific
strategies for containing workers compensation costs including renewal
strategies, assessing safety programs, managing medical costs, evaluating
the employee leasing option, reviewing the ins and outs of experience
rating, retrospective rating, and deductible plans. The
Guide also contains a glossary
to help you with the lingo and an updated directory of workers compensation
organizations for those hard-to-find addresses, websites, and phone
numbers
In IRMI Update 45, Jack Gibson
asked whether companies are too quick to lay off their safety and
risk management professionals when the economy turns down and what
those professionals can do to prevent this. We received many interesting
responses citing personal experiences and reactions. Excerpts follow.
Click here to read Jack's original comments.
- This is a good question. There was an excellent
article written several years ago that placed organizations
into one of three categories:
- SWAMP—Safety without any management
process
- NORM—Naturally Occurring Reactive
Management
- World Class
This article states that most companies at one
time or another are in the SWAMP, i.e., they may
know their need for improved safety but they generally
move to the next level because they are forced to,
either due to increasing losses or compliance issues.
From the SWAMP, they move to the NORM where they
become reactive, not proactive. It is at this point
that same organizations may hire a Safety Professional
because they realize they need help. It isn't always
because they understand the costs of risk and losses.
Many feel they are big enough that they have to
get a safety person. Most organizations move to
the NORM and stay there or actually move back to
the SWAMP.
Very few companies are World Class. These are
the organizations that truly understand the costs
of risk and losses and the impact they have on the
bottom line. Organizations that hire safety people
to come in and fix the situation and then let them
go, I am not convinced really, truly understand
the business aspects of safety.
I often tell people in my conference or seminar
sessions that there are three ways to sell safety;
- Moral aspects
- Legal aspects
- Business aspects
Quite frankly, safety is hard to sell from a
moral standpoint, i.e., it is difficult to get management
to move simply because it is the right thing to
do. We can see some movement from management due
to their fear of OSHA, but usually we find this
movement to be short lived. These organizations
are looking for minimum compliance, not an effective
safety effort. To get management to move, become
involved, and actively support safety, they must
understand the business side of safety.
I fear that some safety professionals are not
good at educating management on the business side
of safety and it is to our detriment. Once they
truly understand the business aspects of safety,
I don't feel that they would terminate the safety
professional unless there were other issues involved.
I believe the same is true as well with Risk
Managers. Safety Professionals and Risk Managers
are often our own worst enemies because we inadequately
educate management on our role and what we can do
for the organization to positively impact the bottom
line and protect profit. I have recently been advising
safety personnel to bring more value to their positions
by taking a broader view of, "risk" and taking on
more of a risk manager's role, in organizations
that do not have Risk Managers. Safety Professionals
often are given a singular role and do not work
to broaden it.
—David B. McKinney, CSP, CRM, VP Client Services,
IMA of Kansas, Inc., Wichita, KS
- In 30+ years of risk management work (private
and public sectors), value is always measured by
the bottom line and that is upper most in the minds
of the executives that have the power to hire and
fire us. Risk and safety managers who consistently
translate for their executive management, the value
of their efforts and how that has contributed to
the bottom line, need not fear losing their jobs
based solely on "once the work has been cleaned
up, we don't need you any more."
—Mike Bailey, Risk Manager,
Sound Transit, Seattle, WA
- I can never understand why companies seem to
always reduce the safety departments and/or person
responsible for safety. Safety is a cost as is training,
and it does take a while and a lot of hard work
to show the effects and benefits of a safety program.
The problem is, once the program is up and running
it needs to be monitored, revised, and watched carefully
for deficiencies and non-compliance issues. As far
as I'm concerned, the program is only as good as
the safety person that ensures the policies, procedures,
and compliance's are being followed. Companies do
not realize the risks they take by not having a
specific person looking after the safety program,
but the cost of fines, property damage, and injuries
will outweigh the cost of a good safety person's
wage, and in some cases this is the only eye opener
for some companies.
—Steve Avery, National Safety/WCB Specialist,
Securicor Canada, Toronto, Ontario
- The safety director must demonstrate to senior
management that:
(1) Any safety program that is not monitored
and supervised will fall into disuse. This is due
to the natural tendency of people to do what is
convenient instead of boring and burdensome.
(2) Changes in personnel, technology and procedures
will inevitably require change in safety/disaster
recovery plans. Anyone who ignores this has only
used a Band-Aid.
(3) Safety plans can add to the bottom line (think
workers comp, health insurance experience ratings,
and absenteeism).
—Ben Kaufman, Treasurer,
Hertz Furniture Co., Mahwah, NJ
- Being a safety "professional" means more than
just cleaning up safety practices. To be a permanent
fixture in today's organizations, a safety professional
needs to demonstrate how he or she is contributing
to the organization's goals and objectives. They
need to work closely with top management showing
them how their safety efforts have made a difference
to the company. They also need to develop key relationships
so that they can effectively communicate their passions
for safety and learn more about what makes the key
players in the organization tick. The bottom line
is that a successful safety professional is 50%
technical safety and 50% sales/marketing.
—Dan Foster, ARM, Risk Manager,
Water & Sewer Risk Management Pool, Bellevue, WA
- The bottom line on safety, risk management,
competitive intelligence, etc.—all of them internal
services that do not directly affect the bottom
line—is that they are extremely difficult to quantify.
But quantify we must if we are to convince anyone
of their value to the organization.
Production or sales can quantify how many widgets
were produced or how may were sold; they can then
say that the company's profit was umpteen thousand
dollars per quarter. The executives understand such
stark figures. They can also tell what sells and
what doesn't, and adjust production accordingly.
Internal services, on the other hand, do not
contribute to the bottom line so directly. What
can be quantified may be arguable, depending on
the indicators or methods used. The only way to
make a service acceptable to the top executives
is to get their agreement beforehand as to what
they will accept and consider real indicators of
worth to the company. In other words, what quantification
indicators they will accept as quantifiable contributions
to the company's profit or, alternatively as in
the case of safety, loss prevention (such as preventable
litigation payouts or increased overhead from higher
employee benefit costs). Prevented or recovered
losses in turn add to the bottom line, or more accurately
prevent the bottom line from eroding. ("A penny
saved is a penny earned.")
However good an internal service product is,
though, it simply cannot compete with the hard statistics
of widgets sold. In the end, there's always a certain
amount of mushiness to the indirect indicators of
a service. And that means that getting the participation
and acceptance of the top executive is key. If he/she
accepts the numbers, then everyone else follows.
Unfortunately, a safety program can go great
guns until its champion—a particular top executive—leaves
the organization. Lacking the appreciation and knowledge
of the previous one, the new one may well simply
decide to "clean house" and kill services that,
in his/her mind, do not contribute directly and
measurably to the bottom line. Then, unless the
new top exec is educated quickly, the safety officer
(or whatever service) is let go. Could this have
been the plight of the safety officer who is the
subject of your communication?
—Jacques R. Island, President,
Inquesta Corporation, Coral Gables, FL
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