R&I: What was your first job?
I got into the insurance business working for the Combined Insurance Co. of America on a part-time basis while I was attending the University of Illinois.
I was interested in the business partly because my great-grandfather started a regional property insurance company in 1917 in Indianapolis, Ind., named Merchants Property Insurance Co. of Indiana. It is still family owned and I succeeded my father on the board of directors when he passed away in 2011.
R&I: How did you come to work in risk management?
I was recruited by Wausau Insurance Cos. … As it turned out, the Superintendent of Schools for Miami-Dade County Public Schools (M-DCPS), Leonard Britton, had been reading about risk management and told his friend — who happened to be my boss with Wausau — that he wanted to create a risk management department from what was the current insurance department.
I [agreed] to meet with Superintendent Britton … he told me of his vision. Ultimately, I told Dr. Britton that I would come to the school for two years and help him build a risk management program for the district [but] I forgot to leave. I’m currently in the middle of my 29th year here!
I think the biggest change is the fact that risk managers are not just viewed as insurance purchasers but professionals that sit at the highest levels of our organizations and serve business leaders on a macro level rather than just serving as insurance people within our organizations.
With a push from the risk management community, the insurance industry has become more accountable to their policyholders. This includes listening to the risk management community with regard to the types of coverage risk managers are seeking, including terms and conditions; issuing policies in a timely manner; and overall becoming a partner in creating strategic risk solutions.
R&I: What emerging commercial risk most concerns you?
Like many other industry professionals I am concerned about cyber risk, but my concern transcends the normal risks associated with cyber. It’s not just about making sure that … the personal information of my 345,000 students and 50,000 full and part-time employees is not hacked.
We have a significant focus on placing technology in the hands of our students, and to move them from traditional book learning into a high-tech environment of teaching and learning. That includes providing students with tablets, outfitting classrooms with SmartBoards and empowering all 345,000 students to become technologically savvy so that they will be able to compete in a technologically sophisticated world.
When you do that, cyber capability and protecting the risk around it becomes paramount. We must take necessary steps to protect [employees’ and students’] personal information, Social Security numbers, grades, and family information. Many fees which were once paid with cash are now paid with credit cards at our 400+ locations and this information must be protected as well.
With a push from the risk management community, the insurance industry has become more accountable to their policyholders.
R&I: Who is your mentor and why?
My mentor is a gentleman whom I have had the privilege of knowing and working with for my entire career at Miami-Dade County Public Schools. His name is Jim Marshall and he is a principal in the consulting firm of Silver Insurance Consultants based in St Petersburg, Fla.
I’ve worked with him for the better part of my 29 years at the Miami-Dade schools. His firm has been a consultant to Miami-Dade in property/casualty and risk management including claims administration. Jim has been instrumental in providing wording for many of the district’s manuscript insurance policies.
He is one of the most knowledgeable people I know and someone I would go to when I need clarity on how to handle a risk management issue.
R&I: What have you accomplished that you are proudest of?
Being identified as a national leader in risk management and serving as president of the Risk and Insurance Management Society (RIMS) in 2011.
R&I: What is your favorite book or movie?
Devil in the White City by Erik Larson is my favorite book. The book is set in Chicago around 1893 and is an interesting depiction of the 1893 Chicago World’s Fair intertwined with fictional characters and sub-plots.
Being from Illinois, I found the book fascinating for its historic depiction of the creation of the buildings for the 1893 World’s Fair on the South side of Chicago close to where the University of Chicago now is, and Erik Larson’s ability to augment this nonfiction story with creative fictional story lines and sub-plots.
I remember vividly how young the North Korean soldiers appeared to be, and I was only 20 years of age myself at the time.
R&I: What is the most unusual/interesting place you have ever visited?
Seoul, South Korea. I was fortunate enough to be able to travel with my best friend and fraternity brother and his family my senior year at U of I. His father was a project engineer for Amoco and they were building a refinery in the Seoul area.
I believe it struck me as a kid from Illinois as it was so different from other places I had traveled and we were actually able to go to the demilitarized zone and step into North Korea.
I remember vividly how young the North Korean soldiers appeared to be, and I was only 20 years of age myself at the time.
R&I: What is the riskiest thing you have ever done?
As a risk manager, I dare say that I typically do not participate in risky things; however, the two things which come to mind which I would typically not do include taking a small seaplane from Vancouver to Victoria (we returned by way of Ferry).
The other was a helicopter ride over the Hawaiian waterfalls and the pilot realized halfway through the trip that he was on the wrong radio frequency and unable to communicate with other helicopters in the area.
R&I: If the world has a modern hero, who is it and why?
Heroes are very personal and it’s not my place to name one for the world; however, my father who passed away in 2011 was one of mine. He taught me right from wrong, supported me and was very proud of my career in the insurance industry.
Scrambling for Cover
School districts have been forming insurance purchasing pools for decades to trim their premium rates, and the trend is accelerating as they face financial pressure from hobbled state and municipal budgets, new state laws and the Patient Protection and Affordable Care Act (ACA).
Even though the trend is accelerating, pooling faces a number of challenges. For example, some rural districts’ attempts to create or join a pool may be frustrated by carrier-imposed size requirements.
Scott R. Baldwin, managing director of the public sector practice, Arthur J. Gallagher & Co., said some “big carriers” that dominate the health care insurance market in rural areas decline to insure small- and mid-size districts that could benefit from joining or forming purchasing pools.
A district that joins a pool may not be able to find coverage in its region, even with the same carrier that covered it on a stand-alone basis. Most carriers will fully insure a school district with as few as 20 employees on a stand-alone basis.
“It may not be in the best financial interest of insurance companies to participate in coalition planning,” Baldwin said. It makes financial sense for the districts, however, especially those with proper stop-loss coverage and adequate funding. But once a district joins a pool, a carrier may drop its coverage — and all of the other districts in that pool.
“It may not be in the best financial interest of insurance companies to participate in coalition planning.” — Scott R. Baldwin, managing director, public sector practice, Arthur J. Gallagher & Co.
The cutoff for health care coverage, Baldwin said, is at about 150 covered lives for pools. At 150 and above, most major carriers are willing to provide stop loss, PPO network access and claim administration services to pools. Not all states permit joint purchasing agreements, and those that do impose stiff regulations on their operation, Baldwin said.
Another challenge for school districts is that changing carriers can be challenging.
Mobility between carriers can be somewhat restricted for California school districts, even those that are fairly large, said Deb Mangels, senior vice president of employee benefits and founding principal of ABD Insurance and Financial Services. Due to industry-standard marketing and underwriting guidelines, a school district can be “handcuffed” to the giant managed care consortium Kaiser Permanente.
This reflects a combination of demographics and logistics. A significant number of public employees residing in the heavily populated regions of California receive health care from Kaiser through the California Public Employees’ Retirement System (CalPERS). But Mangels said underwriting data for small- to mid-sized pools is hard to come by.
“Getting claims data out of Kaiser for groups under 5,000 is nearly impossible,” Mangels said, and without good information on a group’s claims experience, prospective carriers are unable to project future claims costs either as a stand-alone district or as part of a pool.
With more than 1,000 school districts and more than 144,000 teachers in California, plus their families and more than 250,000 eligible retirees, health care programs and associated costs are a “huge” issue, Mangels said.
Cadillac Tax Driving Change
The ACA imposes yet another challenge for school districts. The High-Cost Employer-Sponsored Health Coverage Excise Tax provision of the ACA — the “Cadillac tax” — pressures public school teachers to shoulder more of the costs of their historically generous health care benefits.
When it takes effect in 2018, the Cadillac tax will impose a 40 percent levy on individual health plans above $10,200 for individuals and $27,500 for family coverage, with both employer and worker contributions included. The tax applies to both insured and self-funded plans.
Mangels sees preparing school districts and unions for the ramifications of the Cadillac tax as an essential part of the broker’s role. Education of union reps is particularly important.
“If they aren’t comfortable with information we provide, they won’t communicate it to their members accurately,” Mangels said.
John Abraham, director of worker benefits and capital strategies for the American Federation of Teachers (AFT), said the quality of health care plans has not diminished among unionized school districts, but notes “a big push” among employers to higher deductible plans because doing so helps them avoid the Cadillac tax.
However, fewer than 5 percent to 10 percent of teachers currently choose that option. Most older, experienced teachers with families opt for traditional HMOs and PPOs.
“Benefits have eroded to the extent that teachers contribute more to premiums and pay higher deductions.” — Mike Nault, executive director, human resources, Oshkosh Area School District
Where states have been aggressive in reforming benefit packages for schoolteachers, the results have been mixed.
Three and a half years after the passage of Act 10 in Wisconsin, the Oshkosh Area School District struggles to maintain teachers’ health care benefits and give them pay raises that at least keep up with cost of living increases.
“Benefits have eroded to the extent that teachers contribute more to premiums and pay higher deductions,” said Mike Nault, executive director of human resources, Oshkosh Area School District.
The law requires state employees to pay at least 12.6 percent of the average cost of annual premiums, and it requires changes in plan design to reduce current premiums by 5 percent. Wisconsin is considering switching from its HMO model to self-insurance.
The passage of Act 10 also requries districts to go to bid for health care insurance, rather than specifying carriers. “The competition made the carriers sharpen their pencils,” Nault said. “We get a fairly decent product at a lower price.”
Although many teachers are reconciled to paying more of their health care insurance costs, many are pushing back at what they perceive as an assault on their benefits, pay and general respect.
Sandi Fisher, a 5th grade teacher at a public school in the depressed Kensington neighborhood of Philadelphia, said she can’t make an appointment with some of her medical providers because they’ve opted out of her Keystone HMO plan.
Still, she said, “no one’s complaining about making contributions. It’s everything else they’re taking away.” The district doesn’t reliably provide classroom supplies, such as paper. And it wants teachers to give back up to 13 percent of their salaries to the district in addition to taking the cuts in benefits.
“No one’s complaining about making contributions. It’s everything else they’re taking away.” —Sandi Fisher, teacher, School District of Philadelphia
Relations between the School District of Philadelphia and the Philadelphia Federation of Teachers are so acrimonious that the district’s School Reform Commission voted last fall to cancel the union contract and impose new health care terms on the union. In a victory for the union, the Pennsylvania
Commonwealth Court ruled on Jan. 22 that the district may not restructure the collective bargaining agreement between the teachers union and the school district, sending the warring parties back to the negotiating table.
The discord in the Philadelphia system is “indicative of what’s going on in the country,” although that is magnified by the large size of the metropolitan school district, said Baldwin.
For school districts that use substitute teachers, their hours present a challenge under the ACA.
Historically, said Dr. Frank Vail, director of insurance services, South Carolina School Boards Association, substitute teachers didn’t get benefits, but under the ACA, they do if they work enough hours to be considered full-time workers.
“The problem is how to track and keep records,” he said, since several recordkeeping formulas apply.
“Some districts have contracted out substitute teaching to companies like Kelly so they don’t have to deal with it.”
Others, said Abraham of the AFT, have cut teachers’ hours to avoid the mandate to offer insurance to full-time employees. “That wasn’t the intention of the mandate. Where employers don’t work with us on ways to mitigate the impact of the employer mandate, it’s a mess.”
Wellness programs are a more welcome cost-cutting strategy, both for health care, and worker’s compensation insurance and claims, which are a school district’s biggest insurance cost, according to Michael McHugh, area senior executive vice president, public and nonprofit division, Arthur J. Gallagher & Co.
For example, many Wisconsin districts have implemented health risk assessments and introduced on-site or near-site clinics, a convenient, lower-cost form of health care.
Wisconsin’s Act 10 requires health risk assessments aimed at participant wellness and collection of data related to assessing the quality and effectiveness of health care providers.
Daniel Wolak, president, Union Labor Life Insurance, sees a trend to freestanding, on-site clinics staffed by full-time doctors and nurses, such as the ones in Wisconsin.
“These clinics act as gatekeeper,” he said, directing teachers to pricier specialists only when necessary. They also free up the teachers’ own doctors to spend more time with their patients when they make office visits.
The push for wellness, however, introduces privacy concerns, Abraham said.
“Individuals worry when employers ask about their health status. They ask, ‘Will I get fired because I’m using health care benefits? Will my premium go up?’ ”
And then there are administrative decisions: Penalties or incentives? An additional $50 on premiums for employees who don’t do the health screens or a $50 gift card for those who do?
“All districts want to take care of their kids’ teachers. … There’s no one-size-fits-all solution.” — Norman Reisman, retired benefits consultant, multiemployer funds
Insurance companies, working with school districts, unions or coalitions, can adjust plan design to trim premium costs, said Norman Reisman, a recently retired benefits consultant with more than 40 years of health care insurance experience in multiemployer funds. Pharmacy benefits are “the fastest-growing chunk of health care spend,” he said.
Plans can save money by encouraging the use of generics and incenting mail order instead of retail prescriptions. These small moves save “a lot” of money. Plans can also require greater member contributions and tighten up eligibility requirements, Reisman said.
“All districts want to take care of their kids’ teachers,” Reisman said, but federal and state laws, the prevailing culture and the district’s financial health all play a role.
“There’s no one-size-fits-all solution,” he said.
2015 General Liability Renewal Outlook
There was a time, not too long ago, when prices for general liability (GL) insurance would fluctuate significantly.
Prices would decrease as new markets offered additional capacity and wanted to gain a foothold by winning business with attractive rates. Conversely, prices could be driven higher by decreases in capacity — caused by either significant losses or departing markets.
This “insurance cycle” was driven mostly by market forces of supply and demand instead of the underlying cost of the risk. The result was unstable markets — challenging buyers, brokers and carriers.
However, as risk managers and their brokers work on 2015 renewals, they’ll undoubtedly recognize that prices are relatively stable. In fact, prices have been stable for the last several years in spite of many events and developments that might have caused fluctuations in the past.
Mark Moitoso discusses general liability pricing and the flattening of the insurance cycle.
Flattening the GL insurance cycle
Any discussion of today’s stable GL market has to start with data and analytics.
These powerful new capabilities offer deeper insight into trends and uncover new information about risks. As a result, buyers, brokers and insurers are increasingly mining data, monitoring trends and building in-house analytical staff.
“The increased focus on analytics is what’s kept pricing fairly stable in the casualty world,” said Mark Moitoso, executive vice president and general manager, National Accounts Casualty at Liberty Mutual Insurance.
With the increased use of analytics, all parties have a better understanding of trends and cost drivers. It’s made buyers, brokers and carriers much more sophisticated and helped pricing reflect actual risk and costs, rather than market cycle.
The stability of the GL market also reflects many new sources of capital that have entered the market over the past few years. In fact, today, there are roughly three times as many insurers competing for a GL risk than three years ago.
Unlike past fluctuations in capacity, this appears to be a fundamental shift in the competitive landscape.
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them, through risk control, claims management and a strategic risk management program.”
— David Perez, executive vice president and general manager, Commercial Insurance Specialty, Liberty Mutual
Dynamic risks lurking
The proliferation of new insurance companies has not been matched by an influx of new underwriting talent.
The result is the potential dilution of existing talent, creating an opportunity for insurers and brokers with talent and expertise to add even greater value to buyers by helping them understand the new and continuing risks impacting GL.
And today’s business environment presents many of these risks:
- Mass torts and class-action lawsuits: Understanding complex cases, exhausting subrogation opportunities, and wrangling with multiple plaintiffs to settle a case requires significant expertise and skill.
- Medical cost inflation: A 2014 PricewaterhouseCoopers report predicts a medical cost inflation rate of 6.8 percent. That’s had an immediate impact in increasing loss costs per commercial auto claim and it will eventually extend to longer-tail casualty businesses like GL.
- Legal costs: Hourly rates as well as award and settlement costs are all increasing.
- Industry and geographic factors: A few examples include the energy sector struggling with growing auto losses and construction companies working in New York state contending with the antiquated New York Labor Law
David Perez outlines the risks general liability buyers and brokers currently face.
Managing GL costs in a flat market
While the flattening of the GL insurance cycle removes a key source of expense volatility for risk managers, emerging risks present many challenges.
With the stable market creating general price parity among insurers, it’s more important than ever to select underwriting partners based on their expertise, experience and claims handling record – in short, their ability to help better manage the total cost of GL.
And the key word is indeed “partners.”
“The current risk environment underscores the value of the insurer, broker and buyer getting together to figure out the exposures they have, and the best ways to manage them — through risk control, claims management and a strategic risk management program,” said David Perez, executive vice president and general manager, Commercial Insurance Specialty at Liberty Mutual.
While analytics and data are key drivers to the underwriting process, the complete picture of a company’s risk profile is never fully painted by numbers alone. This perspective is not universally understood and is a key differentiator between an experienced underwriter and a simple analyst.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks — things that aren’t necessarily captured in the analytical environment,” said Moitoso.
Mark Moitoso suggests looking at GL spend like one would look at total cost of risk.
Several other factors are critical in choosing an insurance partner that can help manage the total cost of your GL program:
Clear, concise contracts: The policy contract language often determines the outcome of a GL case. Investing time up-front to strategically address risk transfer through contractual language can control GL claim costs.
“A lot of the efficacy we find in claims is driven by the clear intent that’s delivered by the policy,” said Perez.
Legal cost management: Two other key drivers of GL claim outcomes are settlement and trial. The best GL programs include sophisticated legal management approaches that aggressively contain legal costs while also maximizing success factors.
“Buyers and brokers must understand the value an insurer can provide in managing legal outcomes and spending,” noted Perez. “Explore if and how the insurer evaluates potential providers in light of the specific jurisdiction and injury; reviews legal bills; and offers data-driven tools that help negotiations by tracking the range of settlements for similar cases.”
David Perez on managing legal costs.
Specialized claims approach: Resolving claims quickly and fairly is best accomplished by knowledgeable professionals. Working with an insurer whose claims organization is comprised of professionals with deep expertise in specific industries or risk categories is vital.
“We have the ability to influence underwriting decisions based on experience with the customer, knowledge of that customer, and knowledge of how they handle their own risks, things that aren’t necessarily captured in the analytical environment.”
— Mark Moitoso, executive vice president and general manager, National Accounts Casualty, Liberty Mutual
“When a claim comes in the door, we assess the situation and determine whether it can be handled as a general claim, or whether it’s a complex case,” said Moitoso. “If it’s a complex case, we make sure it goes to the right professional who understands the industry segment and territory. Having that depth and ability to access so many points of expertise and institutional knowledge is a big differentiator for us.”
While the GL insurance market cycle appears to be flattening, basic risk management continues to be essential in managing total GL costs. Close partnership between buyer, broker and insurer is critical to identifying all the GL risks faced by a company and developing a strategic risk management program to effectively mitigate and manage them.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Liberty Mutual Insurance. The editorial staff of Risk & Insurance had no role in its preparation.