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 Web site 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.
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, Web sites, 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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