Universal Risk Management
Risk management theory and practice fascinates — and can also appear so complex — because it resides in so many different professional realms and takes such different shapes.
Some of this year’s Risk All Stars work for widely known companies with billions in assets. Others work for a nonprofit that cobbled its solutions together with government grants.
In some examples, winners of the award were armies of one, who either through specialization or a unique perspective effected sweeping change. But creativity, passion and perseverance, the traits that we base this award on, are found in every winner.
In the person of Dr. Mike Tomecek, of the Oklahoma Spine & Brain Institute, Risk & Insurance® gives an award for the first time to a neurosurgeon; perhaps it won’t be the last.
Dr. Tomecek uses electrodiagnostic functional assessments to determine whether medical hardware removal surgery is really necessary. His specific knowledge of nerve function, coupled with technology, allows him to determine whether the movements that are actually causing pain or immobility are connected to medical hardware or are coming from some other place.
With his assessments, Dr. Tomecek acts as a patient advocate who is reducing surgeries and recommending site-specific physical therapy, a far less costly and intrusive treatment.
Risk All Stars winners Chris Chathams and Latitia Estrada are working-class heroes. These safety and human resources specialists work for the Timber Products Manufacturers Association.
The association is a trade group for smaller operators in the extremely hazardous timber industry in the Pacific Northwest. Using massive, unforgiving chain saws to bring down big trees, workers in the timber industry get hurt badly when something goes wrong.
The forestry companies that depend on the association as a safety education resource don’t have the resources to offer safety training on their own, even though such training is drastically needed.
Using grants from OSHA, Chathams and Estrada created a safety training program that in a three-year span reduced injuries for some member companies by 75 percent. That’s a lot of workers and their families suffering less trauma.
Richard Pcihoda, the director of risk management for the Pennsylvania Real Estate Investment Trust, moved with speed and effectiveness when Superstorm Sandy struck. One of PREIT’s shopping malls suffered millions in damage when the storm hit.
But Pcihoda had planned ahead, lining up a reconstruction contractor so he didn’t have to wait in line for help after the fact. Pcihoda’s planning, and his great relationships with his adjusters, resulted in the Hudson Mall reopening a mere 17 days after the storm.
Business interruption was lessened and many jobs saved as a result.
Risk management can be a thankless job. It demands hard work and attention to detail that some people would rather not think about.
But we think about it. The 2014 Risk All Stars awards are our way of saying thanks.
Complete coverage of the 2014 Risk All Stars winners begins here.
Leading From the Front
Making your fellow employees safer and creating more risk resiliency in your organization requires much more than simply doing your job.
It means doing the hard work to find a unique and practical solution, and then having the backbone and drive to implement that solution despite whatever obstacles you might face. In effect, doing the right thing over the easy thing.
These eight Responsibility Leaders do that and more. Through their drive and passion, they are the ones creating solutions that benefit not only their organizations but their employees and their communities.
Leslie Lamb works for Cisco Systems, with 75,000 employees and more than $100 billion in assets. You could count the members of her risk management team on one hand.
But Lamb’s Global Risk & Resilience Management team is bold and acts strategically. They dig deeper into the business, to take the time to meet with department heads in the effort to better understand their risks.
Lamb and her team created that most precious of dynamics. They created a dialogue among company leaders that is risk-focused. The award-winning Lamb reports that after a five-year effort, that dialogue is not only ongoing, it is expanding.
Sprague Operating Resource’s David Hershey displayed courage and dedication in standing up for his fellow risk managers. When insurance carriers decided in one fell swoop to stop notifying designated third parties that policies naming them as insureds were cancelled, he stood up to take a leading role.
In demanding that such notification be restored contractually, Hershey was insisting that insurance be what it says it is: a backstop that enables the smooth and productive flow of commerce.
“Commerce is not in business to justify the insurance industry, insurers, agents and brokers,” Hershey said, in one of the most relevant statements that may have ever appeared in this publication.
His status as a Responsibility Leader® stems from the essence of the definition of the award. He made a difference for an entire industry by leading when no one else stepped forward.
Hershey also furthers the profession of risk management by being a frequent speaker and author on risk management topics. He talks to college students about careers in risk management and teaches insurance at the Insurance Library of Boston.
Hershey and the rest of the 2014 Risk All Stars Responsibility Leaders® are not only doing what needs to be done, they are helping others to do it as well.
Here are the 2014 Risk All Stars Responsibility Leaders.
Champion for Change
Workers’ Compensation Manager Patty Hostine created dramatic gains for Cooper Standard Automotive by championing a fundamental change in the way both management and employees perceived the company’s approach to injury treatment and recovery.
That kind of transformation is never an easy sell. But Hostine’s ability to clearly communicate the benefits of the change to people at every level of the organization is the hallmark of a Responsibility Leader®.
“When she came on board we had all kinds of new management — nobody was on board with our thought process,” said Gerry King, who hired Hostine to manage workers’ compensation at Cooper Standard.
“So it was taking them and making them see the business side of workers’ compensation that a lot of people don’t look at,” King said.
Hostine is also committed the members of her team, and to making sure that everyone involved has the tools and knowledge they need to excel.
“Her ethics are above reproach,” said Mick Altherr, coordinator of health, safety and environment, and workers’ compensation at Cooper Standard Automotive, “and that drives her theme of being fair, firm and friendly. … She’s an amazing talent with her drive for knowledge. She shares her thought process to educate the people who work with her.”
Filling a Need for Safety
Saws and heavy lumber make the timber and wood products industry inherently dangerous. But many small companies lack resources to provide adequate safety training to employees.
Enter Latitia Estrada and Chris Chathams of Timber Products Manufacturers Association (TPM). The duo leveraged their nonprofit status to win government grants to create and provide training to member organizations at no cost.
The training programs, consisting of webinars, worksheets, and videos, bring awareness to the highest-risk areas of the industry, all the way from logging in the forest to working a sawmill on the factory floor.
Over the past two years, more than 80 employers and 2,200 employees in seven different states have received training.
The pair estimates they’ve saved participating companies more than $134,000 in training costs alone, not including costs saved by lowering injury rates.
One company was able to slash their injury rates by 50 percent.
Chathams and Estrada have also widened TPM’s involvement within the safety industry.
They’ve worked with different chapters of the American Society of Safety Engineers, the Northern Idaho Safety Fest and the Montana Safety Fest.
Looking to the future, they’ve also helped TPM create a safety scholarship and internship program.
Making a Difference
David Hershey is a prolific speaker and writer on risk management topics. The list of industry awards he has won and industry leadership positions he occupies runs longer than most restaurant menus.
He serves as a board member, president, vice president, and committee member — both now and in the past — for the New Hampshire chapter of the CPCU, the Massachusetts and Delaware Valley chapters of RIMS, the Philadelphia Area Risk Managers Association, the Governor’s Council on Insurance Fraud, and the Association of Certified Fraud Examiners.
He has also volunteered his creativity and passion about risk management by serving on the External Affairs Committee and Standards & Practices Committee of the national RIMS organization.
Sharing his knowledge with others, Hershey taught classes for the Insurance Society of Philadelphia and the Independent Insurance Agents & Brokers of New Hampshire.
In challenging insurance carriers to restore their obligation to inform named insureds when a policy is cancelled — and establishing a process to make sure his company was protected — Hershey made a difference to countless others in the risk management community, not just himself or his company.
“Notification is one of the core concepts of risk management,” he rightly noted.
Taking on a Mighty Challenge
You sign on to share the burden of managing risk for a high-profile $15 billion company. Months down the road, you’re bidding “Happy Retirement” to half of your team and wondering how you’re going to manage it all alone. That scenario could send a chill down the spine of any seasoned risk professional.
But Dan Holden took on the challenge, and he thrived —identifying multiple savings opportunities in the insurance and risk management programs of Daimler Trucks North America.
Holden made a critical assessment of his responsibilities. He carved out the pieces that needed his attention most, and sought alternative means to get the rest accomplished, like relying more heavily on the company’s TPA and on the company’s existing online portal.
He also skillfully leveraged his resources, tapping into the expertise of his brokers, other vendors, and former colleagues to gather the tools he needed to succeed.
Taking on the work of two men, Holden persevered by looking at the big picture and restructuring his priorities.
That freed him up get creative in making adjustments to DTNA’s insurance program, negotiating better policy terms by highlighting the impact of the economic downturn. The determination to rise above every challenge is what makes Holden a Responsibility Leader®.
Worth Her Weight in Gold
The company Leslie Lamb works for has more than 75,000 employees and $100 billion in assets.
Imagine the amount of work involved to break down department silos and gain a better understanding of risk on a department by department basis.
It can’t have been easy to go to company leadership and say that you want to conduct risk meetings with each department, to get a better understanding of not only each department’s risk but how risk straddles the entire company.
But that’s what Leslie Lamb and her risk management team of three did.
Senior leaders who didn’t before are now talking to one another about risk as a result of Lamb’s drive to unify all stakeholders.
The result is a sharing of information about exposures, risk scenarios and how best to mitigate them.
Because of Lamb’s leadership, Cisco can take to its underwriters a story that is far more educated and nuanced. Underwriters like that; they like it very much.
As a Responsibility Leader® and winner of a Risk All Stars Award, Leslie gets a plaque and mention in this magazine. But to the company that employs her, she is worth her weight in gold.
Running to the Fight
Maybe it’s his history in emergency management and current service as a volunteer firefighter that gives Richard Pcihoda the reflexes to run to the fight, because that is what he did as Superstorm Sandy threatened in October of 2012.
Pcihoda, the director of risk management for the Pennsylvania Real Estate Investment Trust, based in Philadelphia, wasn’t the only risk manager whose job got a lot tougher when Sandy hit, but it looks like he outperformed many of his contemporaries.
Not only did Pcihoda conduct the necessary planning and preparation to reduce his own company’s business interruption, he went out of his way to counsel his company’s Jersey City (N.J.) Hudson Mall tenants on coverage and recovery methods after the mall suffered millions in damage.
Pcihoda looked at the whole picture and acted on it. The day after the storm struck, Pcihoda jumped in his truck and drove to Jersey City, getting there before formal travel bans were in place to jump start the recovery process.
He had his contractors in place ahead of the storm to get a jump on reconstruction. He had the adjuster relationships to pull it together seamlessly.
Pcihoda is a Risk All Star because he possesses passion, creativity and perseverance. He’s a Responsibility Leader® because through his actions, he shows others how it’s done.
Creating His Own Solution
When the 16 institutions comprising Wisconsin Technical Colleges faced persistent problems obtaining insurance coverage suited to their unique needs, Steven Stoeger-Moore didn’t just find the solution — he created it.
Stoeger-Moore helped to establish Districts Mutual Insurance (DMI) in 2004 to represent the colleges and provide better insurance and risk management services.
Under his self-implemented “Rule of 16,” he ensures that if any school has a problem, all 16 colleges benefit from DMI’s solution. That dedication led to the development of comprehensive risk management programs — provided to each school at no cost — for electrical and fire safety inspections, emergency response planning, legal consultations, and employee health and safety consultations, among many others.
And when those programs were tested, Stoeger-Moore sprang into action. In the past 10 years, the Wisconsin Technical College System has weathered both a tornado and a major fire. Both times, he was at the scene within 24 hours of the event, providing claims and insurance guidance as well as comfort for shaken colleagues.
Stoeger-Moore has also worked to bolster the industry’s future by encouraging young people to consider a career in risk management. Through DMI, he creates opportunities for young people to learn about the colleges’ unique challenges and the programs created to meet them.
Pathogens, Allergens and Globalization – Oh My!
In 2014, a particular brand of cumin was used by dozens of food manufacturers to produce everything from spice mixes, hummus and bread crumbs to seasoned beef, poultry and pork products.
Yet, unbeknownst to these manufacturers, a potentially deadly contaminant was lurking…
What followed was the largest allergy-related recall since the U.S. Food Allergen Labeling and Consumer Protection Act became law in 2006. Retailers pulled 600,000 pounds of meat off the market, as well as hundreds of other products. As of May 2015, reports of peanut contaminated cumin were still being posted by FDA.
Food manufacturing executives have long known that a product contamination event is a looming risk to their business. While pathogens remain a threat, the dramatic increase in food allergen recalls coupled with distant, global supply chains creates an even more unpredictable and perilous exposure.
Recently peanut, an allergen in cumin, has joined the increasing list of unlikely contaminants, taking its place among a growing list that includes melamine, mineral oil, Sudan red and others.
“I have seen bacterial contaminations that are more damaging to a company’s finances than if a fire burnt down the entire plant.”
— Nicky Alexandru, global head of Crisis Management at AIG
“An event such as the cumin contamination has a domino effect in the supply chain,” said Nicky Alexandru, global head of Crisis Management at AIG, which was the first company to provide contaminated product coverage almost 30 years ago. “With an ingredient like the cumin being used in hundreds of products, the third party damages add up quickly and may bankrupt the supplier. This leaves manufacturers with no ability to recoup their losses.”
“The result is that a single contaminated ingredient may cause damage on a global scale,” added Robert Nevin, vice president at Lexington Insurance Company, an AIG company.
Quality and food safety professionals are able to drive product safety in their own manufacturing operations utilizing processes like kill steps and foreign material detection. But such measures are ineffective against an unexpected contaminant. “Food and beverage manufacturers are constantly challenged to anticipate and foresee unlikely sources of potential contamination leading to product recall,” said Alexandru. “They understandably have more control over their own manufacturing environment but can’t always predict a distant supply chain failure.”
And while companies of various sizes are impacted by a contamination, small to medium size manufacturers are at particular risk. With less of a capital cushion, many of these companies could be forced out of business.
Historically, manufacturing executives were hindered in their risk mitigation efforts by a perceived inability to quantify the exposure. After all, one can’t manage what one can’t measure. But AIG has developed a new approach to calculate the monetary exposure for the individual analysis of the three major elements of a product contamination event: product recall and replacement, restoring a safe manufacturing environment and loss of market. With this more precise cost calculation in hand, risk managers and brokers can pursue more successful risk mitigation and management strategies.
Product Recall and Replacement
Whether the contamination is a microorganism or an allergen, the immediate steps are always the same. The affected products are identified, recalled and destroyed. New product has to be manufactured and shipped to fill the void created by the recall.
The recall and replacement element can be estimated using company data or models, such as NOVI. Most companies can estimate the maximum amount of product available in the stream of commerce at any point in time. NOVI, a free online tool provided by AIG, estimates the recall exposures associated with a contamination event.
Restore a Safe Manufacturing Environment
Once the recall is underway, concurrent resources are focused on removing the contamination from the manufacturing process, and restarting production.
“Unfortunately, this phase often results in shell-shocked managers,” said Nevin. “Most contingency planning focuses on the costs associated with the recall but fail to adequately plan for cleanup and downtime.”
“The losses associated with this phase can be similar to a fire or other property loss that causes the operation to shut down. The consequential financial loss is the same whether the plant is shut down due to a fire or a pathogen contamination.” added Alexandru. “And then you have to factor in the clean-up costs.”
Locating the source of pathogen contamination can make disinfecting a plant after a contamination event more difficult. A single microorganism living in a pipe or in a crevice can create an ongoing contamination.
“I have seen microbial contaminations that are more damaging to a company’s finances than if a fire burnt down the entire plant,” observed Alexandru.
Handling an allergen contamination can be more straightforward because it may be restricted to a single batch. That is, unless there is ingredient used across multiple batches and products that contains an unknown allergen, like peanut residual in cumin.
Supply chain investigation and testing associated with identifying a cross-contaminated ingredient is complicated, costly and time consuming. Again, the supplier can be rendered bankrupt leaving them unable to provide financial reimbursement to client manufacturers.
“Until companies recognize the true magnitude of the financial risk and account for each of three components of a contamination, they can’t effectively protect their balance sheet. Businesses can end up buying too little or no coverage at all, and before they know it, their business is gone.”
— Robert Nevin, vice president at Lexington Insurance, an AIG company
Loss of Market
While the manufacturer is focused on recall and cleanup, the world of commerce continues without them. Customers shift to new suppliers or brands, often resulting in permanent damage to the manufacturer’s market share.
For manufacturers providing private label products to large retailers or grocers, the loss of a single client can be catastrophic.
“Often the customer will deem continuing the relationship as too risky and will switch to another supplier, or redistribute the business to existing suppliers” said Alexandru. “The manufacturer simply cannot find a replacement client; after all, there are a limited number of national retailers.”
On the consumer front, buyers may decide to switch brands based on the negative publicity or simply shift allegiance to another product. Given the competitiveness of the food business, it’s very difficult and costly to get consumers to come back.
“It’s a sad fact that by the time a manufacturer completes a recall, cleans up the plant and gets the product back on the shelf, some people may be hesitant to buy it.” said Nevin.
A complicating factor not always planned for by small and mid-sized companies, is publicity.
The recent incident surrounding a serious ice cream contamination forced both regulatory agencies and the manufacturer to be aggressive in remedial actions. The details of this incident and other contamination events were swiftly and highly publicized. This can be as damaging as the contamination itself and may exacerbate any or all of the three elements discussed above.
Estimating the Financial Risk May Save Your Company
“In our experience, most companies retain product contamination losses within their own balance sheet.” Nevin said. “But in reality, they rarely do a thorough evaluation of the financial risk and sometimes the company simply cannot absorb the financial consequences of a contamination. Potential for loss is much greater when factoring in all three components of a contamination event.”
This brief video provides a concise overview of the three elements of the product contamination event and the NOVI tool and benefits:
“Until companies recognize the true magnitude of the financial risk and account for each of three components of a contamination, they can’t effectively protect their balance sheet,” he said. “Businesses can end up buying too little or no coverage at all, and before they know it, their business is gone.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Lexington Insurance. The editorial staff of Risk & Insurance had no role in its preparation.