Risk Insider: Elizabeth Carmichael

ERM Is Not Just ‘Our’ Problem

By: | June 15, 2016 • 2 min read
Elizabeth Carmichael is the director of compliance and risk management for Five Colleges Inc., which includes Amherst, Hampshire, Mount Holyoke, and Smith College. She can be reached at [email protected]

Jack Hampton recently wrote, “Risk managers have a staggering problem on their hands if they are ever going to make enterprise risk management inroads across the full Academy. There is no other way to see it.”

And he’s right. Risk managers will always have a staggering, even insolvable problem, on their hands as long as they are the ones responsible for developing and implementing ERM at their institution. The same holds true for any business.

I’ve recently come back from the Higher Education Compliance Conference of the Society of Corporate Compliance and Ethics (SCCE).

There, I was heartened to hear presentations from multiple institutions where a team of senior leaders across the institution lead the ERM process.

As we know, engaging senior leadership in the ERM process helps to ensure the success of the program by placing the risk ownership across the institution, rather than allowing the perception of ownership to sit in Risk Management.

As we know, engaging senior leadership in the ERM process helps to ensure the success of the program by placing the risk ownership across the institution, rather than allowing the perception of ownership to sit in risk management. The most mature and robust programs fully integrate the compliance, ERM, traditional risk management and internal audit functions.

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The risk management burden, as Jack points out, is endless and ever varying. We will never be able to stop the rogue employee from breaking the rules, including the grumpy professor trying to make a point by publicly illustrating gaps in our systems.

We may seldom be able to stop the determined assassin before he strikes.

However, an ERM program can protect the institution or the company from the consequences of these actions while boosting resiliency and resources if it enables us to develop processes that will

  • Put organizational structures in place to identify and manage risk across the enterprise (including compliance risks);
  • Create codes of conduct, policies and procedures in place to guide people on what to do;
  • Educate and train our community so they know what they are expected to do;
  • Give our operations managers tools to self-monitor their risk management and compliance activities and audit the operations as necessary;
  • Develop a clear reporting and investigation processes for claims and complaints;
  • Discipline those that willfully break the rules; teach those that accidentally break the rules; and
  • Investigate and remediate systemic problems and risks.

So, how do we engage leadership in embracing and leading ERM? We talk about it, frequently and to anyone who will listen.

Practice your one-minute ERM elevator speech and use it on faculty, deans, all of your director-level peers and especially senior leaders.

Meet with key risk partners and share the benefits of an enterprise-wide approach.

Be a thought leader on your campus and tie the ERM process to the academic mission.

Gates Garrity-Rokous, vice president and chief compliance officer at The Ohio State University recommends relentless optimism.

Help your senior leaders and administrators understand that using the ERM process will make their lives easier, because ERM will help the institution allocate resources by highest need. Tell them how the ERM process will make our campuses better through improved awareness and clearer communication of risk issues.

It’s easy to feel discouraged in the face of constant stories of tragedies and malfeasance. But there are silver linings.

The students at UCLA were prepared and knew how to shelter in place so that casualties from the Mainak Sarkar shooting were limited. We’re getting better, we’re doing more with less and finding continual improvement.

Find your inner optimist, share your successes with your peers, keep calm and carry on.

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Risk Insider: Jack Hampton

Higher Education Risk Managers: An Uphill Battle

By: | June 6, 2016 • 3 min read
Jack Hampton is a Professor of Business at St. Peter’s University in New Jersey and a former Executive Director of the Risk and Insurance Management Society (RIMS). He was named a Risk Innovator in 2008 by Risk and Insurance®. He can be reached at [email protected]

Mainak Sarkar, 38 years of age, was described by his high school teacher and mentor as calm, smart and unassuming.

“Mainak was a level-headed, intelligent student and never gave any indication of abnormal behavior.” He graduated from one of India’s elite engineering institutes where admission is fiercely competitive and students face huge pressure to excel.

He came to the United States to get his doctorate from UCLA. How did he do?

Not well. Recently, he shot and killed his estranged wife in her suburban Minneapolis home, then drove 2,000 miles to California where he shot and killed his professor before taking his own life.

Risk managers have a staggering problem on their hands if they are ever going to make enterprise risk management inroads across the full Academy. There is no other way to see it.

Individuals who knew him in the U.S. speculated that he “may have been demoralized by the long struggle to earn his doctorate.” A common problem. More than half of doctoral candidates never finish their dissertation.

This is one story that makes me think that risk managers working in higher education have their work cut out for them. I have another.

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In 1996, Professor Alan Sokal submitted a paper to a scholarly journal published by Duke University Press. The title was, “Transgressing the Boundaries: Towards a Transformative Hermeneutics of Quantum Gravity.”

What impact did this single paper have on modern science?

None. Sokal subsequently announced that his paper was outright nonsense presenting silly quotations about mathematics and physics.

He sought to show that a serious scholarly journal would publish, “… a pastiche of left-wing cant, fawning references, grandiose quotations, and outright nonsense … structured around the silliest quotations … he could find about mathematics and physics.”

Risk managers have a staggering problem on their hands if they are ever going to make enterprise risk management inroads across the full Academy. There is no other way to see it.

Colleges and universities are firmly in the hands of faculty and administrators who are in denial when it comes to risks threatening higher education. Last year Sweet Briar, a historically renowned college in Virginia, announced it would close.

The news activated its alumni but otherwise barely rippled the post-secondary waters. Last week Dowling College, less prominent but equally important to its students, took the same drastic step.

Many colleges and universities are on the brink of a crisis caused by high tuition, excessive student borrowing, failure to graduate students within a reasonable time frame, and inadequate job skills after graduation.

Solving these problems is within the scope of enterprise risk management. Unfortunately, as I think they would acknowledge, risk managers are largely paralyzed to help with problems on the academic side of the house.

The requirement to perform obtuse research is a disaster for higher education. It rewards professors for writing nonsense in journals that add little to our knowledge and have almost no practical value.

It distracts everybody from the valuable role of helping develop the knowledge, values, and skills of students. This is the ERM challenge for higher education.

What can we do? Not much about Mainak Sarkar. But wait a minute. Did Sokal violate the ethics of the Academy? Maybe yes, maybe no.

This would be a good topic for a scholarly publication. Perhaps I will get started on that article and leave to other ERM advocates the task of addressing the problem of attracting bright, energetic, and enthusiastic young teachers to the ranks of the professoriate.

Maybe somebody will publish my findings.

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Sponsored: Liberty Mutual Insurance

Commercial Auto Warning: Emerging Frequency and Severity Trends Threaten Policyholders

Commercial auto policyholders should consider utilizing a consultative approach and tools to better manage their transportation exposures.
By: | June 1, 2016 • 6 min read

The slow but steady climb out of the Great Recession means businesses can finally transition out of survival mode and set their sights on growth and expansion.

The construction, retail and energy sectors in particular are enjoying an influx of business — but getting back on their feet doesn’t come free of challenges.

Increasingly, expensive commercial auto losses hamper the upward trend. From 2012 to 2015, auto loss costs increased a cumulative 20 percent, according to the Insurance Services Office.

“Since the recession ended, commercial auto losses have challenged businesses trying to grow,” said David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty at Liberty Mutual Insurance. “As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”

For companies with transportation exposure, costly auto losses can hinder continued growth. Buyers who partner closely with their insurance brokers and carriers to understand these risks – and the consultative support and tools available to manage them – are better positioned to protect their employees, fleets, and businesses.

Liberty Mutual’s David Blessing discusses key challenges in the commercial auto market.

LM_SponsoredContent“Since the recession ended, commercial auto losses have challenged businesses trying to grow. As the economy improves and businesses expand, it means there are more vehicles on the road covering more miles. That is pushing up the frequency of auto accidents.”
–David Blessing, SVP and Chief Underwriting Officer for National Insurance Casualty, Liberty Mutual Insurance

More Accidents, More Dollars

Rising claims costs typically stem from either increased frequency or severity — but in the case of commercial auto, it’s both. This presents risk managers with the unique challenge of blunting a double-edged sword.

Cumulative miles driven in February, 2016, were up 5.6 percent compared to February, 2015, Blessing said. Unfortunately, inexperienced drivers are at the helm for a good portion of those miles.

A severe shortage of experienced commercial drivers — nearing 50,000 by the end of 2015, according to the American Trucking Association — means a limited pool to choose from. Drivers completing unfamiliar routes or lacking practice behind the wheel translate into more accidents, but companies facing intense competition for experienced drivers with good driving records may be tempted to let risk management best practices slip, like proper driver screening and training.

Distracted driving, whether it’s as a result of using a phone, eating, or reading directions, is another factor contributing to the number of accidents on the road. Recent findings from the National Safety Council indicate that as much as 27% of crashes involved drivers talking or texting on cell phones.

The factors driving increased frequency in the commercial auto market.

In addition to increased frequency, a variety of other factors are driving up claim severity, resulting in higher payments for both bodily injury and property damage.

Treating those injured in a commercial auto accident is more expensive than ever as medical costs rise at a faster rate than the overall Consumer Price Index.

“Medical inflation continues to go up by about three percent, whereas the core CPI is closer to two percent,” Blessing said.

Changing physical medicine fee schedules in some states also drive up commercial auto claim costs. California, for example, increased the cost of physical medicine by 38 percent over the past two years and will increase it by a total of 64 percent by the end of 2017.

And then there is the cost of repairing and replacing damaged vehicles.

“There are a lot of new vehicles on the road, and those cost more to repair and replace,” Blessing said. “In the last few years, heavy truck sales have increased at double digit rates — 15 percent in 2014, followed by an additional 11 percent in 2015.”

The impact is seen in the industry-wide combined ratio for commercial auto coverage, which per Conning, increased from 103 in 2014 to 105 for 2015, and is forecast to grow to nearly 110 by 2018.

None of these trends show signs of slowing or reversing, especially as the advent of driverless technology introduces its own risks and makes new vehicles all the more valuable. Now is the time to reign in auto exposure, before the cost of claims balloons even further.

The factors driving up commercial auto claims severity.

Data Opens Window to Driver Behavior

To better manage the total cost of commercial auto insurance, Blessing believes risk management should focus on the driver, not just the vehicle. In this journey, fleet telematics data plays a key role, unlocking insight on the driver behavior that contributes to accidents.

“Roughly half of large fleets have telematics built into their trucks,” Blessing said. “Traditionally, they are used to improve business performance by managing maintenance and routing to better control fuel costs. But we see opportunity there to improve driver performance, and so do risk managers.”

Liberty Mutual’s Managing Vital Driver Performance tool helps clients parse through data provided by telematics vendors and apply it toward cultivating safer driving habits.

“Risk managers can get overwhelmed with all of the data coming out of telematics. They may not know how to set the right parameters, or they get too many alerts from the provider,” Blessing said.

“We can help take that data and turn it into a concrete plan of action the customer can use to build a better risk management program by monitoring driver behavior, identifying the root causes of poor driving performance and developing training and other approaches to improve performance.”

Actions risk managers can take to better manage commercial auto frequency and severity trends.

Rather than focusing on the vehicle, the Managing Vital Driver Performance tool focuses on the driver, looking for indicators of aggressive driving that may lead to accidents, such as speeding, sharp turns and hard or sudden braking.

The tool helps a risk manager see if drivers consistently exhibit any of these behaviors, and take actions to improve driving performance before an accident happens. Liberty’s risk control consultants can also interview drivers to drill deeper into the data and find out what causes those behaviors in the first place.

Sometimes patterns of unsafe driving reveal issues at the management level.

“Our behavior-based program is also for supervisors and managers, not just drivers,” Blessing said. “This is where we help them set the tone and expectations with their drivers.”

For example, if data analysis and interviews reveal that fatigue factors into poor driving performance, management can identify ways to address that fatigue, including changing assigned work levels and requirements.  Are drivers expected to make too many deliveries in a single shift, or are they required to interact with dispatch while driving?

“Management support of safety is so important, and work levels and expectations should be realistic,” Blessing said.

A Consultative Approach

In addition to its Managing Vital Driver Performance tool, Liberty’s team of risk control consultants helps commercial auto policyholders establish screening criteria for new drivers, creating a “driver scorecard” to reflect a potential new hire’s driving record, any Motor Vehicle Reports, years of experience, and familiarity with the type of vehicle that a company uses.

“Our whole approach is consultative,” Blessing said. “We probe and listen and try to understand a client’s strengths and challenges, and then make recommendations to help them establish the best practices they need.”

“With our approach and tools, we do something no one else in the industry does, which is perform the root cause analysis to help prevent accidents, better protecting a commercial auto policyholder’s employees and bottom line.”

To learn more, visit https://business.libertymutualgroup.com/business-insurance/coverages/commercial-auto-insurance-policy.

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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.


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Liberty Mutual Insurance offers a wide range of insurance products and services, including general liability, property, commercial automobile, excess casualty, workers compensation and group benefits.
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