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 website. 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
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, FL
-
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, CA
-
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, FL
-
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, CA
-
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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