Withstanding the Storm
The impact of a hurricane or severe windstorm can be devastating.
The risk of damage to your property is even greater if you’re in a hurricane-prone state like Florida, as in the case of Miami-Dade County Public Schools (M-DCPS).
Between 2004 and 2014, M-DCPS, which owns $10 billion worth of property, received more than $30 million in assistance from the Federal Emergency Management Agency (FEMA) for damage caused by windstorms or hurricanes.
But last year, FEMA published new guidance that essentially reduced funding for properties that had received assistance in the past. If damage was caused by the same peril, FEMA would reduce its assistance by the amount required for the previous disaster, regardless of the deductible.
That’s where Scott Clark, the recently retired risk and benefits officer of M-CDPS, stepped in. To plug the gap, Clark drew up a three-year program with Swiss Re based on a parametric model of coverage.
The new “storm policy,” effective from May 1, provided a limit of $10 million per loss, with a three-year aggregate limit of $20 million. The policy is triggered by wind speeds in excess of 87.5 mph on a weighted basis.
M-DCPS is believed to be the only public entity in the U.S. that has purchased such coverage to address its FEMA shortfall.
This was in addition to a rolling three-year base windstorm property policy that provided a 10 percent to 15 percent no-claims bonus for every storm-free year, net of commissions.
“The problem was that at the time we didn’t have the ability to secure coverage for every property, and we were already spending $25 million to $30 million on property insurance as it was,” said Clark, who is a former Risk and Insurance Management Society president and director.
“So we started looking at the alternatives and that is where we brought in Swiss Re. They came up with a solution that would monitor wind speeds across all of the ZIP codes that our properties were in.
“Provided there was a sustained wind speed of 87.5mph in that area and we could provide out of pocket expenses, the policy would be triggered and pay out $10 million per loss.”
“The problem was that at the time we didn’t have the ability to secure coverage for every property, and we were already spending $25 million to $30 million on property insurance as it was.” — Scott Clark, recently retired risk and benefits officer, Miami-Dade County Public Schools
He added: “Over the last years, since there have been no significant windstorms, year after year we have made savings of 10 percent to 15 percent in the property marketplace through the no-claims bonus.
“On top of that, we have seen a 10 percent to 12 percent increase in the total insurable value of our properties, translating into an overall saving of 20 percent every year.”
“Scott is one of those amazing people who can jump from topic to topic,” said Kathy Silver, vice president at Insurance Consultants. “One minute he can discuss a complex health insurance problem, then walk into a property insurance meeting and not miss a beat. He consistently challenged himself and the people he worked with to consider new solutions and ideas.” &
Risk Management’s Sweet Spot
Mars Inc. is one of the biggest and most successful confectioners in the world.
But when Christopher de Wolfe, global director of risk management, took over the corporate risk management (CRM) group at the start of this year, risk management was often the last thing on people’s minds.
Sites would only reach out with questions or issues immediately before insurance deadlines, or in many cases, after the event. The result was more time and energy spent on getting people to comply with the basics.
de Wolfe, who was with Aon prior to moving to the U.S. with Mars risk management, realized that he needed to educate his company on the integral role of risk management.
“The CRM group had a lot to offer but was severely underutilized, which led to high insurance premiums, a high risk profile, and a significantly reduced resiliency and recovery capability,” he said.
Reflecting on how Mars as a business became a major success, de Wolfe decided that he needed to market and promote his own department in the same way.
Partnering with Lootok, a risk management consultancy firm, he developed a strategy to engage with the employees in a fun yet educational way.
He devised a 5- to 10-year plan, broken into 12- to 18-month strategies and individual project plans by mapping out all of the products and services that risk management offers.
He conducted a perception survey and drew up a program based on the ABCs of risk management.
“The ABCs allowed people to understand that risk management not only provides insurance, but it also ensures that the business continues,” said de Wolfe.
“Once this message was communicated, people became a lot more interested in what we do.”
de Wolfe used Mars’ marketing materials to develop a distinct brand for the risk management program.
“We created a logo, posters, stickers, catch phrases and other swag that created a fun, engaging, consistent, recognizable and highly visible face for the program,” he said. “By using games and activities instead of interviews and PowerPoint presentations, we were able to collect the data we needed, and keep people engaged and interested.”
“The cost of maintaining the program has decreased substantially per site, which allows us to focus on growing the program.” — Christopher de Wolfe, global director of risk management, Mars Inc.
The results of the program have been outstanding, said de Wolfe.
“The cost of maintaining the program has decreased substantially per site, which allows us to focus on growing the program.
“Crucially, though, associates now involve us much earlier in the risk management process and contact us to let us know their risks, request help managing impending events, and help strategize ways to improve overall resiliency at their sites.”
Sean Murphy, CEO and founder of Lootok, said of de Wolfe: “I’ve known Chris for 10 years and what differentiates him is that he treats his program as a business.
“He had a good program before but he wasn’t satisfied with it so he completely revamped it and is now reaping the benefits.” &
Internal Audit’s Shortcoming
The majority of chief audit executives (CAEs) believe that their internal audit functions don’t have the capabilities to meet stakeholder demands, according to a new Deloitte survey.
They also think that their functions lack a strong influence over the board of directors and executive team, the report found.
More than half (57 percent) of CAEs surveyed said that they weren’t convinced their internal audit groups have the skills and expertise to deliver on stakeholder expectations in terms of efficient audits, insightful reports and effective decision support, let alone meeting future demands.
And only 13 percent of respondents said that they were “very satisfied” their functions have the skills to meet the expectations of shareholders.
More worryingly though, 72 percent believe their internal audit functions do not have a strong impact and influence over the board of directors, executive team and other key personnel. A further 16 percent said that their internal audit had little to no impact and influence.
“Internal audit has been scrambling to meet escalating needs in areas such as cyber security, regulatory compliance, corporate governance and third-party risk management.” – Terry Hatherell, global internal audit leader, Deloitte
We believe that this low satisfaction level with the function’s skills is indicative of the increasing complexity of risks facing organizations and the greater need for specialized skills within internal audit to completely assess these risks and the risk management effectiveness over these risks,” said Terry Hatherell, Deloitte’s global internal audit leader.
“Internal audit has been scrambling to meet escalating needs in areas such as cyber security, regulatory compliance, corporate governance and third-party risk management. These findings are concerning and indicate a need for internal audit groups to substantially increase their relevance within their organizations,” he said.
The inaugural survey of more than 1,200 CAEs from 29 countries also found that the biggest skills gaps among their function were cyber, cloud computing and other specialized IT skills (42 percent).
That was closely followed by data analytics (41 percent), risk modeling (27 percent), innovation (26 percent) and fraud detection (24 percent).
Hatherell said that such skills were in high demand and short supply, forcing CAEs to turn to alternative resource models, particularly co-sourcing with third parties and the adoption of rotation and guest auditor programs.
Tied in with this, CAEs view talent gaps and access to quality data as key barriers to the greater adoption of analytics.
According to the report, they cited risk anticipation (39 percent) and data analytics (34 percent) as the two innovations most likely to impact their internal audit function in the next three to five years.
Currently 86 percent of those surveyed use analytics, however only 24 percent use them at an intermediate level and 7 percent at an advanced level.
A little over half (58 percent) of respondents expect to be using analytics in at least half of their audits over the next three to five years, with 37 percent anticipating they will employ it in at least 75 percent of their audits.
“While using analytics to deliver audits more efficiently is an important goal, the survey results lead us to believe internal audit should capitalize on the wealth of available data to deliver more insightful views of business issues and risks to stakeholders.” – Neil White, Advisory partner and internal audit analytics leader, Deloitte
Neil White, an Advisory partner and internal audit analytics leader at Deloitte, said that the need to enhance analytics tools and techniques was a top priority.
“While using analytics to deliver audits more efficiently is an important goal, the survey results lead us to believe internal audit should capitalize on the wealth of available data to deliver more insightful views of business issues and risks to stakeholders.”
Doug Anderson, the Institute of Internal Auditors’ (IIA) managing director – CAE Solutions, said that Deloitte’s findings affirmed what the IIA had been telling its members for some time.
Increasingly, he said that CAEs were looking for different skills sets when hiring, including analytical/critical thinking, communication and data mining and analytics.
He added that it was also important for internal audit to provide assurance on how data is being collected and analyzed within their organization.
“The era of internal audit simply providing hindsight has long past,” he said.
“Modern internal audit functions must offer insight and foresight that help organizations identify and manage risks, build successful business strategies, and nurture cultures that support good governance.
“It is up to internal audit leaders and practitioners to develop the skills to meet those demands and develop trusting and honest relationships with stakeholders that position the organization for success.
“Increasing stakeholder confidence in internal audit requires the profession to step up to meet these new demands.”
Going forward, the survey concluded that CAEs needed to assess the talent and skills gaps within their internal audit function and take the appropriate action. They also needed to embed analytics into all of their processes in order to increase efficiency and value throughout the organization, said the report.