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Risk Insider: Nir Kossovsky

What’s Good for Big Oil is Good for the Banks

By: | August 4, 2014 • 2 min read
Nir Kossovsky is the Chief Executive Officer of Steel City Re. He has been developing solutions for measuring, managing, monetizing, and transferring risks to intangible assets since 1997. He is also a published author, and can be reached at nkossovsky@steelcityre.com.

The New York Federal Reserve Bank president William Dudley is frustrated by the “…deep-seated cultural and ethical failures at many large financial institutions.”

The Financial Times reported July 27 that Fed officials have asked banks to see what they might learn from other sectors “that have gone through crises or reputational 
issues”…wait for it…”such as the oil industry.”

It is sound advice.

Both the oil and banking industries tend to attract “cowboys” for whom rules are only guidelines and risk is a stimulant. Both industries also have a history of socializing the consequences of risk– massive spills with black goo or financial implosions with black holes.

And some oil companies have emerged from crises learning how to better control their cowboys and manage society’s expectations to become exemplary managers of reputation.

ExxonMobil, commemorating this year the 25th anniversary of the largest oil spill in history (until BP’s disaster in 2010), could be the NY Fed’s poster child.

ExxonMobil’s risk management processes came of age after its oil tanker, the Valdez, ran aground on a reef, puncturing the ship’s hull and spilling oil into Prince William Sound, Alaska. The event garnered broad media attention and led to a long series of lawsuits and legislative changes—what is politely termed in reputation management circles as the pile on of litigators, legislators and bloggers.

A jury in Anchorage, Alaska, topped an award against Exxon of millions of dollars in damages with $5 billion in punitive-damages.

Today, ExxonMobil believes risk management is a direct responsibility of line management. Like other engineering firms, its risk management models were once only quantitative.

Empowered by the post-Valdez culture, line executives expressed concern that computer models were missing local nuances that might lead to negligent or criminal behavior, leaving the company exposed to moral hazards.

The company supplemented its quantitative models with strong, direct workforce and line management experience models involving no statistics on failure rates.

While reputation risk management would be nowhere without the right culture, governance, and operational controls, there’s more to it—stakeholder expectation management.

As Jonathan Salem Baskin described in Forbes, ExxonMobil tells stakeholders “that oil is here to stay, we need to accept how vitally useful it is, and improvements in its use are lots more realistic than any fantasies about alternative energy substitutes.”

In its 10K, the company tells shareholders that its success depends on management’s ability to minimize the “inherent risks” of the industry and “the potential for human error.” Moreover, ExxonMobil actually describes many of the management processes it uses to minimize risk.

According to an analysis published by Consensiv, the reputation controls company, based on reputation value metrics we use at Steel City Re, ExxonMobil’s reputation premium, a measure of additional value arising from favorable stakeholder expectations, is at the 96th percentile within its peer group.

ExxonMobil’s 113 percent 10-year return is more than double that of every other oil major excluding Chevron’s 173 percent.

The object lesson for financial institutions is self-evident.

Read all of Nir Kossovsky’s Risk Insider contributions.

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Mobile Malware

Banks Face New Threat

Banks need to ensure mobile cyber protections are as strong as other online threats.
By: | July 7, 2014 • 4 min read
MobileBanking

Banks have been caught off guard by what experts say is the first major mobile banking security threat to hit the United States.

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It is a modification of the mobile Trojan called Svpeng, which has been used to steal money from Russian mobile bank accounts, said Dmitry Bestuzhev, head of global research and analysis team, Latin America, at Kaspersky Lab, a Woburn, Mass.-based antivirus software company that discovered the malware.

The malware, which emanates from Russia, has been termed “ransomware,” because the hackers demand a payment in exchange for not destroying the victim’s reputation, claiming there is child pornography and other prohibited content on the cell phone.

“Nobody wants to be a victim of such image reputation damage.” — Dmitry Bestuzhev, head of global research and analysis team, Latin America, at Kaspersky Lab.

“It takes a picture of the victim and then says it will send it with the child pornography findings to all of the victim’s contacts,” Bestuzhev said. “Nobody wants to be a victim of such image reputation damage.”

Cyber criminals are already taking steps to steal online banking credentials from mobile devices, Bestuzhev said.

Previous versions of Svpeng were used to steal money from several banks in Russia, by displaying a fake log-in window in front of the real one, which asked users to input their credentials.

This new malware is deeply integrated and is almost impossible to remove from an infected device, he added. His company found Svpeng through “proactive Internet exploring.”

Better software is needed to protect against malware, said Chris Keegan, a managing director at Beecher Carlson, in New York.

For now, banks rely on warning their customers against social engineering attempts by fraudsters, and usually that means, “Don’t press the button or answer the email.” Banks must warn their customers not to download any applications not found on the iPhone store, Google Play or other verified websites, he said.

Banks Ran Out of Time

Avivah Litan, a Gartner Inc. vice president and analyst in Potomac, Md., said the malware should serve as a wake-up call for many banks, as a fair number of them have not developed security measures for mobile banking that are as robust as those used in online banking.

Ensuring that customers use secured browsers doesn’t apply when they use mobile apps.

Giants like Chase Bank and U.S. Bank and others are developing tougher measures specific to mobile, but the industry has a whole need to step it up, Litan said.

“Everybody knew it was coming, but they thought they would have had more time.” – Avivah Litan, vice president, Gartner Inc.

“They’ve just been slow to put measures in place specific to mobile because there hasn’t been any mobile malware,” she said. “Everybody knew it was coming, but they thought they would have had more time. But now it’s here and they have to think about it now.”

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Matt Krogstad, head of mobile banking at Bank of the West in San Francisco, said the bank’s fraud prevention department works with his department to combat mobile malware and other types of mobile banking fraud.

“It’s an ongoing process since the mobile security space is constantly evolving,” Krogstad said.

Bank of the West also tries to protect customers against unofficial third-party services that try to access apps or put themselves between the customer and the apps, after customers download them, he said.

Bank of the West also diligently educates customers about the latest threats, Krogstad said.In cases like Heartbleed, communications to customers were to reassure them that the bank had done its due diligence to ensurethat their accounts were safe.

“With other malware like this randomware, it’s more about reinforcing certain behaviors, such as not downloading apps from unofficial app stores or not clicking on links from people you don’t know,” he said. “Don’t jailbreak your phone or put your banking passwords in your contacts.”

Continuing Challenges

Keeping up with all types of cyber crime continues to challenge the industry. Indeed, computer crime and malicious codes ranks as No. 5 as a top risk for banks, according to Aon’s 2014 U.S. Industry Report: Financial Institutions.

However, there is a disconnect at most banks that hampers risk mitigation, said Michael O’Connell, managing director, financial institutions practice at Aon Risk Solutions.

The disconnect occurs because one group traditionally is responsible for purchasing insurance, while another group is responsible for assessing exposures, including technology that may pose an operational enterprise risk, said O’Connell.

“We strongly recommend linking the two groups together, to assess ‘what-if scenarios’ and develop mitigation strategies that include insurance,” he said.

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Kevin Kalinich, Aon’s global practice leader for cyber/network risk, said that recent court decisions have ruled that if fraudsters are able to steal customer identities or money, it is the bank’s obligation to help their customers, even if the fraud is out of the bank’s control.

“So if a customer gets fooled on their mobile devices, then the bank has the responsibility to monitor usage of their bank accounts,” Kalinich said.

Katie Kuehner-Hebert is a freelance writer based in California. She has more than two decades of journalism experience and expertise in financial writing. She can be reached at riskletters@lrp.com.
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Sponsored: Healthesystems

The Next Wave of Workers’ Comp Medical Cost Savings

Reducing WC claims costs in one area often inflates them in another.
By: | August 4, 2014 • 6 min read

Managing medical costs for workers’ compensation claims is like pushing on a balloon. As you effectively manage expenses in one area, there are bound to be bulges in another.

Over the last decade, great strides have been made in managing many aspects of workers’ compensation medical costs. Case management, bill review and pharmacy benefits management are just a few categories that produce significant returns.

And yet, according to the National Council on Compensation Insurance (NCCI), medical costs remain the largest percentage of workers’ comp expenses. Worse still, medical costs continue to be the fastest growing expense category.

Many medical services are closely managed through provider negotiations, bill review, utilization review, pharmacy benefits management, to name a few. But a large opportunity for medical cost containment remains largely untouched and therefore represents a significant opportunity for cost savings.

Ancillary medical services is a term used to describe specialty or supplemental health care services such as medical supplies, home health care, durable medical equipment, transportation and physical therapy, etc.

According to Clifford James, Vice President of Strategic Development at Healthesystems in Tampa, Fla., modernizing the process for managing ancillary medical services presents compelling opportunities for cost savings and improved patient care.

Source: 2014 Healthesystems Ancillary Medical Services Survey

“The challenge of managing these types of medical products and services is a cumbersome and extremely disconnected process,” James said. “As a result, it represents a missing link in an overall medical cost management strategy, which means it is costing payers money and patients the most optimal care.”

James singled out three key hurdles:

Lack of transparency

As the adage goes, you can only manage what you can measure.

Yet when it comes to the broad range of products and services that comprise ancillary benefits, comprehensive data and benchmarking metrics by which to gauge success are hard to come by.

The problem begins with an antiquated approach to coding medical services that was developed in the 1970s. The coding system falls short in today’s modern health care environment due to its lack of product and service level detail such as consistent units of measure, quantity and descriptors.

As a result, a meaningful percentage of ancillary benefits spending is coded as “miscellaneous,” which means a payer has little to no visibility into what product or service is being delivered — and no way to determine if the correct price is being applied or if the item is even necessary or appropriate.

Source: 2014 Healthesystems Ancillary Medical Services Survey

“It’s a big challenge. Especially when you consider that for many payers, it’s difficult to determine exactly what they are spending, or identify what the major cost drivers are when it comes to ancillary services,” James said. And when frequently over 20 percent of these types of services are billed as miscellaneous, payers have zero visibility to effectively manage these costs.

Measurement and monitoring

Often, performance that is monitored is given the most attention. Therefore, ancillary programs that are closely monitored and measured against objective benchmarks should be the most successful.

However, benchmarks are hard to determine because multiple vendors are frequently involved using disparate data and processes. There isn’t a consistent focus on continuous quality improvement, because each vendor operates off of their own success criteria.

“Leveraging objective competitive comparisons breeds success in any industry. Yet for ancillary services there is very limited data to clearly measure performance across all vendors,” James said. “And for payers, this is a major area of opportunity to promote service and cost containment excellence.”

Source: 2014 Healthesystems Ancillary Medical Services Survey

Inefficiency

If you ask claims executives about their strategies for improving the claims management process, a likely response may be “workload optimization.” The goal for some is to enable claims professionals to handle a maximum case load by minimizing administrative duties so they can leverage their expertise to better manage the outcome of each case.

But the path towards “workload optimization” has many hurdles, especially when you consider what needs to be coordinated and the manual way it frequently is done.

Ancillary benefits are a prime example. For a single case, a claims professional might need to coordinate durable medical equipment, secure translation services, arrange for transportation and confirm the best physical therapy plan. Unfortunately they often don’t have the needed time, or the pertinent information, in order to make quick, yet informed, decisions about the ancillary needs of their claimants.

In addition there is the complexity of managing multiple vendor relationships, juggling various contacts, and accessing multiple platforms and/or making endless phone calls.

SponsoredContent_HES“We’ve been called the ‘industry integrator’ by some people, and that’s accurate. We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”
– Clifford James, Vice President of Strategic Development, Healthesystems

Modernizing the process

To the benefit of both payers and vendors, Healthesystems offers Ancillary Benefits Management (ABM).

The breakthrough ABM solution consists of three foundational components — a technological platform, proprietary medical coding system and a comprehensive benefits management methodology.

The technological platform integrates payers and vendors with a standardized architecture and processes. Business rules and edits can be easily managed and applied across all contracted vendors. All processes – from referral to billing and payment – are managed on a single platform, empowering the payer with a centralized tool for managing the quality of all ancillary providers.

But when it comes to ancillary products, the critical and unique challenge Healthesystems had to solve is the antiquated coding system. This was completed by developing a highly granular, product-specific coding system including detailed descriptions and units of measure for all products and services. This coding provides payers with the clearest understanding of all products and services delivered including pricing and all the necessary utilization metrics.

“We bring the highest level of transparency and visibility into all ancillary products and services,” James said, adding that the ABM platform uses an extensive preferred product coding system 15 times more detailed than any other existing system or program.

This combination of sophisticated technology, proprietary coding system and benefit management methodology revolutionizes the ancillary category. Some of the benefits include:

  • Crystal-clear transparency
  • A more detailed and comprehensive view into ancillary products and services
  • An automated process that eliminates billing discrepancies or resubmittals
  • Integrated and consistent processes
  • Strategic program management

Taken together, the system leapfrogs over the existing hurdles while creating entirely new opportunities. It’s a win for vendors and payers, and ultimately for patients, who receive the optimal product or service.

“We’ve been called the ‘industry integrator’ by some people, and that’s accurate,” James said. “We are delivering a proven platform connecting payers with providers and vendors on the ancillary medical benefit front. It’s never been done before.”

To learn more about the Healthesystems Ancillary Benefits Management solution visit: http://www.healthesystems.com/solutions-services/ancillary-benefits

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Healthesystems. The editorial staff of Risk & Insurance had no role in its preparation.

Healthesystems is a leading provider of Pharmacy Benefit Management (PBM) & Ancillary Benefits Management programs for the workers' compensation industry.
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