Alternative Vision Saves Millions
Steve Stoeger-Moore saved Wisconsin’s 16 technical colleges $10 million in premium over the past 10 years.
He did it by helping to create an alternative insurance system whereby the schools obtain nine varieties of coverage — including general liability, auto liability, workers’ compensation, property, violent acts, and most recently, cyber risk — via a mutual municipal insurance company.
That company is Districts Mutual Insurance (DMI). The mutual taps reinsurance markets including Gen Re and Fireman’s Fund, to obtain coverages above retention layers held by the individual colleges.
Most of the time, DMI also holds a retention layer.
The alternative insurance structure was devised in the midst of the hard markets of 2001-2003, when a few of the schools’ finance professionals wondered whether there might be a better way to go, said Stoeger-Moore.
At the time, he said, the Wisconsin Technical Colleges — which had been purchasing their needed insurance products as a consortium — were reeling from annual rate increases year after year.
“The schools had been seeing double-digit increases in premium for three straight years as of 2003, with compounded increases of 20 percent each year during ’01, ’02, and ’03 — all driven by market conditions, not losses,” Stoeger-Moore said.
In fact, he said, the schools’ loss ratio over the three-year period was just 27 percent.
“The coverages appropriate to higher education had become more and more restricted. Carriers were selectively writing various businesses, and M&A activity among insurers was taking a lot of options off the table,” he said.
“No college pays for a loss suffered by another college. And no college pays a premium based on a loss at another college.” — Steven Stoeger-Moore, president, Districts Mutual Insurance
Meanwhile rates were going up and up and up every year, Stoeger-Moore said.
The solution: DMI.
Before the mutual was formed, Stoeger-Moore served as risk manager for the Milwaukee Area Technical College, one of only a few state technical schools that had a risk manager in place.
As the market hardened, school finance officials approached Stoeger-Moore, who developed the blueprint for DMI and agreed to take on the insurer’s day-to-day operations.
“It’s an insurance carrier that has no employees,” he said.
On the other hand, via independent vendors, DMI has experts working as third-party claims administrators, accountants, and auditors, besides commercial insurance carriers like London-based Beazley, which is now partnering with DMI in underwriting a cyber breach response program.
Stoeger-Moore said that it is illegal for insurers to pool their exposures, payments, or reserve funds under Wisconsin state law.
“No college pays for a loss suffered by another college,” he said.
“And no college pays a premium based on a loss at another college.”
Stoeger-Moore has his share of fans. “Steve is really the most knowledgeable insurance technical person I’ve ever met. He created this whole thing,” said Joe DesPlaines, DMI’s business continuity and crisis response consultant.
DesPlaines said Stoeger-Moore envisioned that the mutual would offer insurance coverage as well as risk management consulting including crisis response planning, employee health and safety, and security assessments.
DMI’s budget is derived from college premium payments, said Stoeger-Moore.
Linda Joski, area vice president for Arthur J. Gallagher and Co. in Wisconsin, which brokers all reinsurance coverages for DMI, said that Stoeger-Moore is one of a kind.
“He is innovative and creative and works so well with these colleges,” she said.
Steven is also being recognized as a 2014 Responsibility Leader.
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.
Risk All Stars stand out from their peers by overcoming challenges through exceptional problem solving, creativity, perseverance and/or passion.
Responsibility Leaders overcome obstacles by doing the right thing over the easy thing to find practical solutions that benefit their co-workers and community.
Hospital Group Hits Milestone
Back in 1991, a group of Pennsylvania hospitals dipped their toes into the water of captives. That water happened to be offshore. Their other insurance option was the “turmoil” of the traditional market. So they decided to dive in with a class-2 insurer called Cassatt Insurance Co. Ltd. It provided members with excess professional and general liability insurance.
The group thrived — enough to encourage the formation of another captive in 1997. This time, Cassatt planted its flag firmly onshore, in Vermont, with a risk retention group (RRG) called Cassatt Risk Retention Group Inc. Coverage was for the primary level, set beneath what was then called the Pennsylvania CAT Fund, which became the Pennsylvania MCare Fund in 2002.
(Essentially, MCare, or Medical Care Availability and Reduction of Error, guarantees “reasonable compensation,” according to the Commonwealth, for persons injured due to medical negligence by paying from the fund for claims in excess of primary insurance coverage.)
The RRG today has five shareholders, nine hospitals and more than 1,200 physicians insured.
The next big step in the group’s evolution came in 2006, when Cassatt RRG Holding Co. gained a far greater role in the everyday operations of the captives and their members. The holding company assumed responsibility for claims, risk management, underwriting and finance.
“It is really a service organization to the membership,” said Eric W. Dethlefs, president and chief executive officer of the Malvern, Pa.-based holding company.
What the increased role of the holding company — and the overall development of Cassatt — demonstrates is truly an innovative progression; the ability to anticipate trends as they emerge. It’s a trait particularly handy for health care organizations, especially as of late, when issues appear to be rising faster than most organizations can understand, let alone manage.
Take the most recent examples of Cassatt’s growth. In 2012, Cassatt RRG Holding Co. launched the Cassatt Patient Safety Organization. This past October, it formed Cassatt Insurance Group Inc. — coincidentally, Vermont’s 1,000th captive formation. Both demonstrate Cassatt’s handle on 21st century health care exposures and strategic imperatives.
A Captive for Convenience
The Cassatt Insurance Group is a sponsored captive — or in other common parlance, a segregated cell captive. Vermont’s 1,000th captive is designed, Dethlefs explained, to provide insurance coverage flexibility for members as they merge and form affiliations with other hospital systems in the coming months and years, as they address the Affordable Care Act and other challenges. Many health care systems are scrambling to find such partners, Dethlefs said. (See related article Managing Change)
“The founding members believed then and continue to believe today that the sharing of risk and the sharing of best practices across the membership is something very important and one of the reasons they formed a group captive.” —Eric W. Dethlefs, president and CEO, Cassatt RRG Holding Co.
Cassatt’s sponsored captive will provide a flexible solution for the health care organizations that partner with Cassatt members. Dethlefs described the concept as each cell being similar to a new spoke off the sponsored captive’s wheel. The RRG is one established spoke. If new partners want the claims, patient safety and other benefits of Cassatt involvement, yet aren’t prepared to share in the other members’ liabilities as they would in the RRG, they can form their own cell, or a new spoke. One key benefit of segregated cell captives is that each cell’s liability is walled off.
Roughly six months into the new captive, Dethlefs said, talks are underway with several health groups.
It’s an attractive model for health care organizations, according to someone who has seen plenty of captive business models (not all 1,000 of Vermont’s, but plenty).
“It is a neat process for them to expand their services to other hospitals,” said David F. Provost, deputy commissioner in Vermont’s Captive Insurance Division. “The result is going to be better patient care.”
“The regulators in Vermont clearly understand the needs of our member hospitals, and this new company will help us to grow and to continue to provide the members and their patients with the benefits of Cassatt’s success,” said Gerald Miller, chairman of the Cassatt board of directors.
A Captive for Care
Cassatt member hospitals have enjoyed a surge of benefits from the aforementioned Cassatt Patient Safety Organization (CPSO), which has been approved by the Department of Health and Human Services’ Agency for Healthcare Research and Quality.
“It’s not a one-and-done kind of thing. It’s continual,” Dethlefs said.
The CPSO can, for example, conduct risk assessments. It brings in experts in a given medical field that represents a high degree of liability exposure — say, obstetrics or surgery — and works with them to analyze the current practice and delivery of care. They learn what they are doing well, and where they could improve.
Another function of the patient safety organization is protected knowledge sharing. Chief medical officers, chiefs of obstetrics and other leaders from member hospitals can gather around a meeting room — a “safe table,” as designated by the federal government — and essentially compare patient safety notes.
Dethlefs called the patient safety organization “just as important, or maybe even more important” than the insurance underwritten by the captives.
“The founding members believed then and continue to believe today that the sharing of risk and the sharing of best practices across the membership is something very important and one of the reasons they formed a group captive,” Dethlefs said.
Indeed, the same rationale went into leveraging the holding company for in-house claims and risk management in 2006. The holding company now has four case handlers and one director making up the claims staff, representing more than 125 years of collective professional liability experience, he said.
They investigate each case, evaluate liability and damages, and make recommendations on whether to settle or litigate. The claims personnel are capable of following a claim from the initial incident to the case disposition, working in conjunction with member hospital staff and in-house counsel. They will even attend trials. The results of hands-on claims management pay for themselves.
“We have a very, very good, solid record in terms of favorable loss development,” Dethlefs said.
Cassatt’s holding company also employs a patient safety staff consisting of an administrative director, a medical director and other staff members.
All of this investment was a conscious decision that Cassatt could be capable of managing its members’ exposure better than third-party vendors.
“We had the belief that if we internalized these functions of claims, risk, finance and underwriting, and held people accountable, results would be better,” Dethlefs said.
A Captive for Copying?
Cassatt’s growth — particularly the patient safety organization and the sponsored captive — are not mere symptoms of ACA implementation, though the dynamic nature of health care risk today has a lot to do with it.
“Changes in health care — and particularly in the economics of health care (including the advent of the Affordable Care Act and other legislation and initiatives) — require hospitals to find better, more efficient ways to deliver consistent, high-quality care,” said Laurence M. Merlis, president and CEO of member Abington Health.
“Cassatt is an indispensable partner for Abington as it addresses both challenges: cost and quality. Through its first-class patient safety and risk management work and innovative solutions to insuring our risks, Cassatt plays a major role in ensuring that Abington remains a center of excellence in health care in the Philadelphia region,” he said.
Collective risk management has been a long-term view of the member companies.
“Cassatt was created more than 20 years ago in response to the member hospitals’ need for a high-quality, cost-effective liability insurance solution,” said Miller, Cassatt’s board chairman. “The members’ continued attention to and investment in Cassatt has resulted not only in what we believe is a superior insurance program but also in Cassatt’s capability to provide first-class patient safety and risk management services to the member hospitals.”
Developments since then have been improvements on that theme and responses to current trends.
Although Cassatt’s model may well be considered innovative and worthy of imitation by others facing the current turbulence — we’ll leave that to the experts to determine — Dethlefs doesn’t think it’s particularly innovative. “I think it’s getting back to the basics of doing things correctly and holding folks accountable,” he said.
Complete coverage from R&I’s 2014 Vermont report:
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.