Webinar – Travel Risk Management: Going Beyond Travel Assistance and Insurance
Business travel has never been more global or more compromised by volatility. The search for new markets, suppliers and energy sources is leading employers and their employees into new geographies and political environments, some of them fraught with risk.
This webinar will look at travel accident insurance and travel assistance programs and how best to marry the two products into a travel risk management program that can give employers and employees better peace of mind.
Expert panelists will discuss the following:
- The concept of “Duty of Care”, its limitations and the exposures it can create.
- The different insurance coverages that converge in the travel risk space, where they converge and where they might leave gaps.
- A history of travel accident insurance.
- Organizational challenges: Melding the roles of human resources and risk management so that they work in concert in managing travel risk.
- Employer/employee: Who bears which responsibilities in insuring safe outcomes.
- Loss scenarios and claims examples: Stories from the road of real losses and real claims.
Webinar attendees will be e-mailed a link to the recording of the webinar and its supporting visual materials.
Space is limited, so register today!
Webinar Date: December 9, 2014 1:00 – 2:00pm EST
Captives Offer Control
Rogers Petroleum currently employs 89 people. The Knoxville, Tenn.-based provider of wholesale petroleum distillates insures perhaps 130 lives on its health plan, estimated its vice president of risk management, Mike Jellicorse.
That’s a small-sized company by any measurement. No matter.
Beginning in January 2014, Rogers went self-funded, joined the WELLth Employee Benefit Captive for stop-loss coverage, and aims to remain “in control of our own destiny,” as Jellicorse put it.
Health care reform, in part, drove the decision. As Jellicorse recounted, the employer first considered using a stop-loss captive in 2012, but demurred because of the vagaries of Affordable Care Act implementation.
By 2013, the future was more certain. The ACA then had the opposite effect, encouraging Rogers’ business leaders to self-fund employee health benefits and join a captive.
Again, it came down to control — in large part being able to design its plan any way it wanted as a self-insuring company (as long as it remained within the 60 percent minimum benefit threshold dictated by the law).
It’s the mantra of control that risk and benefit managers at large employers have been repeating over and over to themselves, to their bosses, to captive conference participants and captive owner prospects, and to journalists for years. Now it’s on the lips of some of the smallest employers.
They can now share in the freedom from traditional insurance markets, their volatility and unpredictability, their lack of transparency, their premium spikes year after year.
“That’s what we’re banking on,” said Jellicorse. “Historically, [captives] will flat-line your increases.”
“Everybody Gets There Eventually”
Captive industry growth in 2014 is generated as much from mid-size and small companies as big Fortune 1,000 types, insiders said. In an increasing number of cases, these smaller-sized firms are doing so to help finance their employee health benefits.
“Historically, [captives] will flat-line your increases.” — Mike Jellicorse, vice president of risk management, Rogers Petroleum
Jeffrey Fitzgerald, a vice president of employee benefits at Innovative Captive Strategies (ICS) in West Des Moines, Iowa, which is the firm that owns and operates the WELLth group captive in which Rogers Petroleum participates, said the majority of his firm’s growth has come from small and mid-size employers joining a heterogeneous group captive to seek the benefits of self-funding — more stability, transparency, and essentially more credibility and bulk pricing given from underwriters.
To meet the demand, ICS has created nine group captives — roughly half in the past 18 months — with 100 to 120 clients. The groups are fronted by an insurance carrier, which then cedes the stop-loss coverage back to the captive (a typical structure of a captive writing third-party risk).
ICS can group employers in these heterogeneous captives by several factors, size being an obvious one. Groups are also built based on the level of employer sophistication. How stringent are they on their wellness providers and what level of accountability do they demand? How focused are they on loss control? Some companies are more advanced than others.
“Everybody gets there eventually,” said Fitzgerald. “Most captive members are going to get to a point where they’re communicating with each other, they’re engaged and they’re holding each other accountable.”
Jellicorse at Rogers gives the impression that his employer is already pretty far along the learning curve. They, in part, came to a captive to help make their efforts in wellness pay off.
For years, the company saw improving loss ratios among its population without any premium savings from the insurance company. Now, as a self-funder, paying monthly premiums to itself and simply paying claims as they come along, it stands to reason that any reduction in claims will lead to more money in its proverbial pocket.
Rogers’ employees also benefit from new wellness programs like metabolic screening and weight-loss programs targeted at those at risk for metabolic syndrome, as well as the COMPASS program, which allows members to price shop for medical services. Claims above $25,000 go to the group stop-loss captive, and if the captive’s loss experience is good that year, what’s left over gets paid back pro-rated, to members like Rogers.
These benefits are nothing new to large employers but represent a welcome change for smaller employers.
“We have a couple of different opportunities to come out looking much better cost-wise at the end of the year,” said Jellicorse.
ACA Drives Changes
Fitzgerald sympathizes with his clients. They are really in a “tough place,” he said, meaning that they have had to spend the last two years learning how to be compliant with the ACA.
Most, he said, never intended to drop benefits. But they now know what the cost of their employee health care is, versus what they were actually spending on premiums and services. They have learned to tie their costs to their claims, versus just to their premiums.
“If they’re not in a position to control the spend or have some say or take some risk, then I think it can be really tough,” he said.
Employee benefits are on the minds of captive owners overall.
This year’s Annual Captive Insurance Market Study, released in March by the Captive Insurance Cos. Association (CICA), revealed that more captive owners are considering writing employee benefits in their captive in the intermediate term.
“Further delays, and continuing changes, in the implementation of the Patient Protection and Affordable Care Act are causing ongoing uncertainties around the impact on various constituencies,” the survey authors wrote.
Stop-loss coverage was by far the most popular. Of 133 CICA survey participants, 12 percent already wrote stop-loss in their captives, while 26 percent said it was likely or possible in the next three years.
Karin Landry, past CICA chair and managing partner at Boston-based Spring Consulting Group, said this is a mentionable “uptick” in interest.
Landry, like Fitzgerald, is seeing more small and mid-size employers seeking to pool their stop-loss coverages, and in response to this activity, a number of producers are forming captives for clients.
“I think there are a lot of good solutions out there, but there are some that are not that good,” Landry added.
Beyond stop-loss, Landry is seeing movement again in the Department of Labor’s (DOL) fast-track approval process for single-parent captives to write benefits.
Essentially, this is a process by which large enterprises must file with the DOL to be exempted from ERISA.
Once the DOL approves a given case, then others can gain fast-track approval if their captive use mirrors what’s been previously approved. The process slowed because of design, not because of a DOL change of heart, Landry said.
To earn fast-track exemption (a process called ExPro), companies had to point to at least one prior exemption in the past 10 years and one fast-track exemption in the last five (or two exemptions in the last five years).
Landmark exemptions, like ADM’s 2003 approval, were approaching this 10-year limit. What’s more, the DOL had purposefully built in a 10-year sunset on the program to allow it to review the program in 2012.
Now, however, it appears the exemption process is moving forward again.
“The DOL has shown it’s open to doing other fast-track approaches,” Landry said, suggesting she has some clients that will soon file for an exemption.
It stands to reason that trends like these, affecting single-parent captives, will ultimately drive trends in the industry overall, given the preponderance of single-parent captives in the industry.
In the Marsh Annual Captive Benchmarking Report, released in May 2014, two-thirds of captives were single parents. Only 11 percent of captives are considered group, risk retention groups or cells. These numbers are based on the 1,148 captives in total under management by Marsh, the largest captive manager in the world.
Another trend driving single-parent growth brings us back to the ACA. Health care organizations are generating plenty of activity in response to reform.
In 2013 in Vermont, the top domestic domicile, eight new captives formed for health care companies. In the Marsh benchmarking report, the health care industry is in “solid” second place in terms of having its share of captives around the world, at 13.6 percent.
“A health system making acquisitions needs to decide how many captives it needs, and in which domiciles.”
Two macro trends are happening in the U.S. health care space, with hospitals in particular, to ensure this fact remains so.
Physicians are increasingly seeking to become employees of health care and hospital systems, selling their practices in the process.
And those larger organizations are continuing to seek consolidation, buying provider groups and small local hospital systems — or even verging toward being “mega” players by buying or merging with other big systems, said John Lochner, a director at Towers Watson who specializes in working with such firms.
These processes lead health care and hospital systems to acquire new and more exposures, such as “prior acts” exposures as well as the simple fact that more doctors and hospitals leads to more risk — and often more captives, said Lochner.
A health system making acquisitions needs to decide how many captives it needs, and in which domiciles.
Lochner, though, is seeing this “very active environment” driven more by formations than by consolidations.
“Overall, there remains strong interest in captives throughout. Definitely captives continue to be formed, and not just for health care providers,” he said.
3 + 3: Theory of Risk
Anthony Valsamakis doesn’t just practice risk management, he wrote a book about it. And he doesn’t just consult with quants, he is one.
“Risk management has been in my blood for so long that I have to stop myself, otherwise I could go into a two-hour monologue,” said Valsamakis, whose career in the discipline goes back almost 35 years, to his first job with the Standard General Insurance Company.
In 1990, the London-based chairman of the Eikos Group received a doctorate in Business Economics. In 1992, “The Theory & Principles of Risk Management” was published, with Valsamakis the principal author, and is now in its 4th edition.
Valsamakis worked first with a carrier, then as a commodities broker, before taking up an academic post. The company he started in 1999, the Eikos Group, has a risk consulting arm, with clients in most industrial sectors, including the food, mining, forestry, industrial paper and packaging and banking industries. The group also includes a transportation risk brokerage and a Bermuda-based carrier.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game.”
– Anthony Valsamakis, Chairman, Risk Financing Strategy, Eikos Group
For as long as he can remember, Valsamakis sought ways to get better information on the risks he underwrites, brokers or consults on.
“Over many years we’ve tried hard to increase the quality and timeliness of the information that enables us to do just that,” Valsamakis said.
Finally, it looks like Valsamakis has found a risk management information systems platform that enables him to do just that.
For the past year and a half, Valsamakis has been using a system developed by Riskonnect.
“What’s useful for me is that the platform basically resides within the client’s systems,” he said.
The information he needs to prioritize, depends on which client he is working with.
“By definition, depending on where I am working and what I am doing, risk management priorities are very different,” Valsamakis said.
The Riskonnect platform provides the necessary flexibility.
A mine, for example, could be in a location in Africa or South America with a high degree of political risk. A key risk for a furniture maker might be around trade secrets, the possibility that a disgruntled employee would leak a pricing catalogue to competitors. For a packaging manufacturer, their material supply chain is of the utmost importance, and so on.
For each client, Valsamakis can use Riskonnect platform and work with the client to compile the information that is most relevant to that client and its industry and enter that into a secure system.
“All of these are template facts that you can easily put into the Riskonnect system,” Valsamakis said.
The Riskonnect platform is housed within the client’s information technology system, and it is transparent enough, to give Valsamakis and his client access to the same sets of data.
“I think the idea of having a secure data base that everyone can access and can update at any moment is by far the best innovation that I can see happening in the information game,” he said.
Whose System Is It?
Valsamakis has been around long enough to know a few things about data and risk transfer. He’s seen a number of risk information management systems put out by brokers, for example, that he thinks are set up more for the broker’s business model than for the sharing of information.
Generally speaking, information about an insured’s risks come from the broker and the insured. The Riskonnect system works, according to Valsamakis, because it is designed to be adapted to the client, not the broker.
“I have seen efforts by brokers, for example, over the years to produce a type of risk information platform that becomes theirs,” Valsamakis said.
“It’s been a perennial problem in the industry, where depending on which broker you end up with, you’ll end up with system A, B or C,” he said.
The Underwriter Needs to Know
Using Riskonnect, Valsamakis encourages clients to be as transparent as possible, in order to give the most complete information to underwriters.
“For me the question is, ‘What is the volatility around the asset and can there be an impact on the balance sheet of our clients?’” he said.
“We need to describe this exposure in various contexts so that the underwriters know what they are covering,” he said.
It’s basic human psychology. If an underwriter doesn’t feel they are getting enough information about a particular risk, they will take a negative view of that risk.
The more accurate the information Valsamakis has about a client’s exposures, the better the pricing he gets from underwriters.
“If you were an underwriter putting your capital and risk and I gave you little information, you would actually be less inclined to look at the risk in favorable terms. There will be a natural inclination to downgrade it,” he said.
Where Valsamakis sees enormous value is in the Riskonnect system ability to tag which can be revisited at a later stage.
“It’s amazing how clients forget, in the passage of time, that there are profiles that have changed for better or worse.”
A Long-Term Investment
The Eikos Group invested significantly in the Riskonnect product and are taking it to a number of clients. The transparency of the system and the advantage it gives the Eikos Group and its clients with underwriters is in itself a business advantage over the competition.
“We made a decision as a small company, relatively speaking, to invest a lot of money in Riskonnect and be very proactive about it,” Valsamakis said.
“When I talk to executives I say we invested in it because it’s going to save our clients money. Better information will lead to a lower cost of risk,” he said.
“If I’m talking to someone at a high level, that’s fairly easily understood.”
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Riskonnect. The editorial staff of Risk & Insurance had no role in its preparation.