Alex Wright

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.

Risk Managers

Pay Disparity Seen in Risk Management Roles

Lower pay for women in the field may be due to lower educational credentials or less time on the job.
By: | December 16, 2015 • 4 min read
Topics: ERM | RIMS | Risk Managers
Rims pay story

Female risk managers in the United States tend to earn nearly 25 percent less than their male counterparts, according to a new survey by RIMS.

The biannual “RIMS 2015 Compensation Survey” found that the median annual base salary for male U.S. risk managers was $130,000, compared to $101,000 for women.

Part of the disparity may be because male risk managers tend to have higher levels of education. Forty-two percent of males in the profession have a bachelor’s degree versus 31 percent of females.

Men also have a median of 19 years’ experience in risk management, compared to 15 years for women, the survey found.

Overall, the median annual base salary for all U.S. risk managers increased by 3.7 percent from the previous year, to $115,000 on June 1, 2015.

Overall, the median annual base salary for all U.S. risk managers increased by 3.7 percent from the previous year, to $115,000 on June 1, 2015.

Those with a degree higher than a bachelor’s typically earn $20,000 more than those without, while those with at least 25 years’ experience in the field brought in $55,000 more, on a median basis, than those with fewer than five years’ experience, the survey revealed.

There was also disparity in the earning potential between different job roles.

The survey found that the position with the highest median salary, of $170,000, was chief risk officer or vice president of risk management.

In contrast, claims manager or workers’ compensation claims managers earned only $73,000 for their duties.

Another area of greater earning potential were directors of risk management with ERM responsibility, who make, on average, $9,000 more than their insurance counterparts.

“No matter the maturity of an organization’s risk management program, understanding the cost of employing specialized personnel is critical to any senior leader’s decision-making process,” said RIMS President Rick Roberts.

“The idea of having the entire organization thinking about risk and contributing to the risk management process is extremely beneficial,” he said.

“Many organizations are catching on to this. The number of risk professionals with ERM experience is far lower than those without, making them in higher demand.”

Roberts added that claims personnel were also more highly valued, reflected in the fact that three out of four areas that had a salary increase were in technical or specialty positions — claims or workers’ compensation managers, claims analysts and risk management analysts.

“The ramifications of not addressing claims expediently has the potential of seriously damaging an organization’s reputation,” he said.

“Whether it’s ERM or another specialty,” he said, “the more ways you can improve yourself professionally, the more you can offer an employer.

“Expanding your breadth of knowledge is a sure way to advance professionally and increase the invitations one might receive to join high level discussions about organizational strategy.”

The survey, which was based on responses from 1,145 full-time risk professionals in the U.S. and Canada, found that the median value received by those eligible for additional cash or incentives and who stayed in the same position for the year to June 1, 2015 (77 percent), was $18,000.

Nine out of 10 received cash in the form of bonuses (89 percent), with profit sharing accounting for 16 percent, incentive pay 11 percent, and overtime only 1 percent.

About two-fifths of U.S. risk managers work for publicly traded organizations, one-third were in private industry and one in 10 were either in government or at a nonprofit.

Performance was the key in determining the amount of cash compensation received (94 percent of those eligible), with the organization’s performance (84 percent of U.S. risk managers) more crucial than the person (66 percent) or department (35 percent).

In terms of medical cover, 76 percent of all U.S. risk managers were offered a preferred provider organization.

Of the 96 percent of U.S. risk managers offered a retirement plan, 60 percent were given the choice of a defined-contribution plan.

Most U.S. risk managers also qualified for four weeks’ paid time off per annum, while the most common additional benefits included professional association dues, a cell phone, mileage reimbursement, an employee assistance program and/or a laptop or tablet.

The profile of respondent also made for interesting reading.

About two-fifths of U.S. risk managers work for publicly traded organizations, one-third were in private industry and one in 10 were either in government or at a nonprofit.

The largest number were involved in manufacturing (16 percent), while the typical U.S. risk manager works for an organization with 20,000-plus employees (25 percent).

The most common role in the U.S. was director of insurance and risk management (36 percent), and the least common was director of ERM/strategic risk manager (5 percent) or risk management analyst (5 percent).

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.
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Market Outlook

A Buyer’s Market

Except for cyber, risk managers can expect declining insurance premiums.
By: | December 14, 2015 • 4 min read
R12-15p32_04Outlook2.indd

Cyber and errors and omissions (E&O) insurance rates will spike in 2016 — some by as much as 150 percent — driven by the growing threat of hacking and data theft, according to the latest market report by Willis.

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Overall property and casualty premiums, however, will continue to soften as a result of benign losses and overcapacity, the global insurance broker said in its “2016 Marketplace Realities” report.

In total, Willis expects rates in 2016 to decline in 10 lines, including property, casualty and aviation.

However, cyber and E&O buck that trend, with cyber premiums expected to increase by up to 15 percent in general, and by between 10 percent and 150 percent for point-of-sale retailers and large health care companies.

Smaller organizations with revenues of less than $1 billion face lower increases, said Willis.

Meyer Shields

Meyer Shields, managing director, Keefe, Bruyette & Woods Inc.

Meyer Shields, managing director at Keefe, Bruyette & Woods Inc. at Stifel Financial Corp., said that cyber rates will continue to climb as a result of the high frequency of breaches.

“There’s a recognition that because there’s a high frequency of events there will be more demand for coverage as people realize that they are vulnerable to cyber attacks,” he said.

With total annual cyber premiums expected to reach $20 billion by 2025, according to industry experts, Willis said that underwriting requirements have continued to rise.

“There’s a recognition that because there’s a high frequency of events there will be more demand for coverage as people realize that they are vulnerable to cyber attacks.”  — Meyer Shields, managing director, Keefe, Bruyette & Woods Inc.

Insurers are also increasing retentions, reducing capacity and exiting certain lines, the broker said.

Excess cyber losses have also caused some markets to stop writing large accounts, while others have ramped up their premiums in upper layers of $75 million plus placements.

Willis said that those sectors at risk from large claims and litigation will continue to see the most upward pressure on rates, such as large technology companies dealing with expanding global privacy laws.

As a result of increasing cyber exposures, Willis said that some carriers have decided to withdraw from the retail, health care and financial institution sectors, as well as E&O programs that include cyber coverage.

Chris Lang

Chris Lang, U.S. placement leader, Marsh

Chris Lang, U.S. placement leader at Marsh, said that while rates were decreasing on an aggregate basis, cyber is the exception.

He said “there is a big uptake in coverage by clients, while carriers are driving some rates up as a result of the recent losses experienced, particularly in the retail space.”

As for other lines, he expects a “modest to single digit rate decrease across the board.”

“In property, it’s probably a higher single digit decrease and some of the casualty lines might be flat, as are financial lines.”

Soft Market Continues

The continued soft market, meanwhile, has been exacerbated by an increase in consolidation, driven by low interest rates and a benign year for catastrophes — a trend that is expected to continue in 2016, said the Willis report.

“Marketplace forces have changed the size and shape of the pieces of the risk management puzzle to an extent we have not seen for some time,” said Matt Keeping, chief broking officer for Willis North America.

“The key force driving this change in the market is consolidation.

“A smaller market with fewer, larger players also opens up the field to newcomers that can focus on smaller, specialized niches in areas of potential growth,” he said.

The report went on to say that while property rates will continue to fall, primary casualty rates for most buyers are declining for the first time in the current soft market.

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Premiums for general liability are expected to fall by up to 5 percent and in umbrella/excess by up to 10 percent.

Property rates, on the other hand, should fall by 10 percent to 12.5 percent for non-catastrophe risks and by 12.5 percent to 15 percent for catastrophe risks, said Willis.

Most auto insurance buyers can also expect premium decreases of up to 10 percent, while airline insurance is expected to fall by 15 percent to 20 percent after the industry absorbed the major losses from 2014, according to Willis.

The Council of Insurance Agents & Brokers likewise reported that commercial P&C rates continued to decline across all lines by an average of 3.1 percent during the third quarter of 2015. The biggest decrease was in large accounts, which dropped by 4.1 percent.

“There are going to be more downgrades than upgrades for commercial lines and the vast majority of ratings are going to be affirmations.” — Andrew Colannino, vice president of P&C, A.M. Best

“We continued to hear from our members that this a buyer’s market,” said The Council’s President and CEO Ken Crerar.

Andrew Colannino, vice president of P&C at A.M. Best, said that the rating outlook for commercial lines in 2016 remained negative.

“There are going to be more downgrades than upgrades for commercial lines and the vast majority of ratings are going to be affirmations,” he said.

“There’s a now-widening divide between the strong performers and the underperformers.

“For that second group, there’s going to be an increasing number of reserve charges amongst those carriers — a lot of them haven’t made the proper investments in technology, data and analytics and therefore some are at a competitive disadvantage.”

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.
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Life Science

Countering Counterfeit Drugs

Long supply chains offer criminals ample opportunities to sneak in counterfeit drugs, which pose a serious risk to public health. 
By: | December 14, 2015 • 8 min read
R12-15p30-31_03Counterfeit_RR.indd

We have all received them – spam emails offering cheap Viagra or other such male enhancement drugs.

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Chances are that they’re one of the millions of counterfeit drugs that flood the pharmaceutical market every year.

The World Health Organization (WHO) estimates that at least half of all drugs sold today on illegal websites that conceal their physical address are counterfeit. While counterfeit drugs account for only 1 percent of all medicines sold globally, that still amounts to $200 billion, according to the International Institute of Research Against Counterfeit Medicines.

Law enforcement agencies across the world have seen a huge increase in the manufacture, trade and distribution of counterfeit, stolen and illicit medicines in the last 10 years, with the WHO estimating that worldwide sales have increased by about 90 percent since 2005.

“Counterfeit medicines affect all types of legitimate drugs and threaten the entire health system by creating mistrust.” — Cyntia Genolet, associate manager, regulatory and health policy, International Federation of Pharmaceutical Manufacturers & Associations

“Counterfeit medicines affect all types of legitimate drugs and threaten the entire health system by creating mistrust,” said Cyntia Genolet, associate manager, regulatory and health policy at the International Federation of Pharmaceutical Manufacturers & Associations (IFPMA).

“They can be fake versions of patented, generic or over-the-counter medicines, and exist in all therapeutic areas.”

Counterfeit drugs not only put at risk the lives and health of millions of patients who believe that their prescription medicines are both safe and effective; they also cost the pharmaceutical industry billions of dollars in lost revenue every year and leave companies exposed to a host of reputational and liability risks.

Increasingly complex global supply chains, the rise of internet pharmacies and new advancements in technology have all made it far easier for criminals to produce and sell counterfeit drugs.

“We are seeing a geographical intensification of counterfeiting which is no longer focused on one or two parts of the world, but is now global, largely because of the internet,” said Geoffroy Bessaud, associate vice president of anti-counterfeit coordination at Sanofi.

Risk to Human Health

Matthew Bassiur, deputy chief security officer, Pfizer

Matthew Bassiur, deputy chief security officer, Pfizer

The main risks of taking counterfeit drugs are that they may contain the wrong ingredients, or they may contain too little, too much or no active pharmaceutical ingredient or API (which is what makes the drug effective) at all, according to Matthew Bassiur, deputy chief security officer at Pfizer.

That means patients are not receiving the therapeutic value they need and may suffer adverse effects of taking the wrong ingredients, ultimately putting their health, and lives, at stake.

“It really becomes a game of Russian roulette because you have no way of knowing what it is you’re ingesting,” Bassiur said.

In some cases, these drugs have been found to contain toxic substances such as leaded highway paint, floor polish, brick dust, antifreeze and even rat poison, often because they are being manufactured in unsafe and dirty conditions, he added.

“Counterfeit medicines are being produced in some of the most deplorable and unsanitary conditions imaginable,” he said. “So it’s no surprise that you find these kinds of contaminants in these bogus drugs.”

Worse still, in the case of treatment for infectious diseases with antibiotics or anti-malarials, some diseases can develop drug-resistance if the wrong dose of API has been administered.

To give an idea of the scale of the problem for human health, in 2008 the FDA recorded 81 deaths and about 600 allergic reactions resulting from a batch of counterfeit Herapin, a drug used to prevent blood clots.

“Counterfeit drugs raise significant public health concerns because their safety and effectiveness is unknown.” — Howard Sklamberg, deputy commissioner for global regulatory operations and policy, FDA

“Counterfeit drugs raise significant public health concerns because their safety and effectiveness is unknown,” said Howard Sklamberg, the FDA’s deputy commissioner for global regulatory operations and policy.

Supply Chain Problems

The problem of counterfeit drugs is made worse by an increasingly complex global supply chain network.

With almost 40 percent of all drugs that Americans take being made overseas, according to the FDA, the opportunity to infiltrate the supply chain with counterfeit drugs is far greater than before.

The fact that these drugs are imported also means they may have been mishandled, adulterated or counterfeited before entering the country.

Jim Walters, managing director, life sciences and chemical group, Aon Risk Solutions

Jim Walters, managing director, life sciences and chemical group, Aon Risk Solutions

“Patients expect the supply chain to work properly and if there’s a flaw in that chain it’s not only a potential risk to their own health, but also the reputation of the company making and selling that drug,” said Jim Walters, managing director of Aon Risk Solutions’ life sciences and chemical group.

Ned Milenkovich, principal and co-chair of the health care law practice at law firm Much Shelist, said that globalization was a key factor in the surge in counterfeit medicines.

“On the whole, the situation is worse internationally than in the U.S., where at least we have some safeguards to prevent these drugs entering the market,” he said.

Outside Influences

The majority of counterfeit drugs are manufactured outside the U.S., in largely unregulated markets such as China and India, according to the FDA.

Because of the relatively low production costs and the ease of transportation, as well as lighter penalties compared to other crimes like narcotics, they have become a magnet for international organized criminal gangs.

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The markups are also far greater. For example, based on an investment of $1,000, the estimated profit from counterfeiting a blockbuster drug can be as high as $500,000 versus $20,000 for heroin.

“The criminal world has recognized the margins that can be made from counterfeit medicines and it is much easier to copy these kinds of drugs than it was five to 10 years ago,” said Aon’s Walters.

Counterfeiting is also closely linked to money laundering, drug trafficking and terrorism, said Robert Lane, global practice leader at Willis Resolutions and executive vice president at Willis Global Solutions.

“Terrorism is at the core of this,” he said. “There is a lot of money involved and because of advances in technology, criminals are able to create counterfeit products and maintain a relatively low profile in the process.”

Advances in Technology

Advancements in technology and the internet have also made it easier for criminals to sell their counterfeit drugs online, many of which are a fraction of the price of the original and are dispensed without prescriptions.

Many use sophisticated marketing techniques or fraudulent web storefronts to sell their wares, according to the FDA.

And because of increased technological sophistication, counterfeiters are often able to pass off fake medicines as the real thing, said Bassiur.

“The real danger in ordering these medicines over the internet is a complete lack of transparency and intentional deception, which is a big problem in developed nations where patients are increasingly turning to online to source their medicines,” he said. “However, there are places that people can safely buy prescription medicine online.”

Reputational Risk

While a patient’s health can be compromised by counterfeit drugs, manufacturers and pharmaceutical companies can suffer a huge financial loss in terms of sales.

Robert Lane, global practice leader, Willis Resolutions; executive vice president, Willis Global Solutions

Robert Lane, global practice leader, Willis Resolutions; executive vice president, Willis Global Solutions

It can also infringe on their patent and trademark rights, as well as damage their brand reputation as a result of the negative publicity.

“Essentially what is happening is that your drug is being hijacked,” said Lane.

“There’s infringement across the board in every context and the reputational and financial hit you take as a result can be substantial.”

A company stands to lose not only the benefit of its investment in research and development and advertising that drug, but also the expense of hiring outside experts to look into the problem, according to Dan Torpey, partner in EY’s fraud investigation and dispute services.

“Essentially, someone else is getting the benefit of all your work and effort off the back of sales of a counterfeit product,” he said. “Unfortunately, because a lot of these counterfeiters are rogue individuals or small groups there’s not much recourse for recovery other than enforcement.”

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Laura Sunderlin, life sciences underwriter at Beazley, said that the bigger problem is for those companies in the supply chain who buy the drug without knowing it is counterfeit.

“The worst case would be a large distributor buying a big quantity of the drug and then it being passed on down the supply chain to the end consumer and the potential [repercussions] that could bring,” she said.

Tackling the Issue

The pharmaceutical industry has had some success in the fight against counterfeit drugs. In 2012, 79 arrests were made and $10.5 million worth of potentially lethal medicines was seized in Interpol’s Operation Pangea V, targeting illegal online pharmacies.

In November 2013, President Obama signed into law the Drug Supply Chain and Security Act. The act was designed to protect the public from exposure to counterfeit, stolen or otherwise harmful drugs by enabling the monitoring of certain prescription drugs as they move through the supply chain.

R12-15p30-31_03Counterfeit_RR.inddAnd in January 2016, the Council of Europe will bring into force the Medicrime Convention to police counterfeit drugs and prosecute offenders.

Many drugs companies have also implemented new technologies such as radio frequency identification (RFID) chips and tags to track and trace their products.

They also work with governments, regulators and bodies such as the IFPMA to combat the problem and to raise public awareness, as well as their own operations.

Sanofi, for example, has a dedicated team of experts who search for counterfeit drugs on the internet and has set up a central anti-counterfeit laboratory to analyze suspect products.

Walters, however, was a bit more skeptical about the problem. “While across the board there are lots of ways that companies are tackling the problem, conceivably there is no way that you are going to be able to monitor every single pill or capsule,” he said.

Available Coverage

Provided that there was no intent to defraud and they were unaware that they were buying and passing on counterfeit drugs in the first place, most companies in the supply chain will be covered by professional and product liability and errors and omissions insurance, said Sunderlin.

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However, she said that the problem would continue until an international standard is brought in for monitoring all drugs.

“Until there is an international, required standard of protection for technologies used in legitimate drug packaging which would track a product from manufacturer to consumer, and would make it difficult and very expensive to try to counterfeit, there will be an increasing number of counterfeits introduced and sold around the world,” she said.

Bassiur added: “Counterfeiting is a multibillion dollar enterprise. Large profits, combined with little risk of meaningful penalties in many countries, fuel this illicit industry.

“At the end of the day, the counterfeiter doesn’t care about your health and safety or whether you live or die, they only care about getting your money and lining their own pockets.”

 

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at riskletters@lrp.com.
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