“If By Compensation…”
In 1952, Noah Sweat, Jr. a lawmaker from the then-dry state of Mississippi found himself explaining his position on whiskey to an audience of pro- and anti-prohibitionists. His speech, known today as “if by whiskey,” cheered both sides.
“If when you say whiskey you mean the devil’s brew, the poison scourge, the bloody monster, that defiles innocence… I am against it.”
“But, if when you say whiskey you mean the oil of conversation, the philosophic wine, the ale that is consumed when good fellows get together … I am for it.”
General Motors CEO Mary Barra faced a similar challenge developing the company’s compensation strategy for victims of its faulty ignition switches.
Customers expected GM to fully compensate victims, and capital providers expected GM to protect assets from litigation and compensation funds: One of GM’s major stakeholders was bound to be disappointed.
Barra’s move was to leverage the reputation of Kenneth Feinberg to help restore GM’s reputation with both sides. Kenneth Feinberg’s reputation makes the “if by whiskey” approach to GM’s compensation strategy possible.
Feinberg has been pivotal in resolving many of our nation’s most challenging and widely known compensation matters.
GM customers and victims are warmed by Feinberg’s experience directing the September 11th Victim Compensation Fund. Working pro bono, he spent three years meeting with families and calculating claim awards. Feinberg also handled compensation issues for the Virginia Tech shooting and the Boston Marathon bombing.
Barra’s move was to leverage the reputation of Kenneth Feinberg to help restore GM’s reputation with both sides.
GM’s stakeholders breathe easier knowing that Feinberg, as administrator of BP’s $20 billion fund to compensate victims of the Deepwater Horizon disaster, carefully manned the funding spigot.
Almost one year after the spill began, he had paid only 168,000 claimants out of more than 490,000 people who had filed. Feinberg explained then that 80 percent didn’t have proper documentation; the terms of the GM compensation plan similarly have strict documentation requirements.
Nor is he anti-corporatist. His firm accepted $850,000 a month from BP to administer the compensation fund, which led a New Orleans federal judge to order Feinberg to quit claiming independence from BP.
The “if by compensation” strategy is working, according to analysis published by Consensiv, the reputation controls company, based on reputation value metrics we use at Steel City Re.
The bump on the graph starts June 15th, the week Google Trends shows a steady uptake in searches for Kenneth Feinberg that accompanied an uptick in GM’s reputation metrics.
GM’s reputation premium, a measure of additional value arising from favorable stakeholder expectations, rose to the 46th percentile within its peer group, while the consensus trend, a measure of stakeholder surprise, showed an increase to 1.2 percent.
Reputation is about setting, meeting or beating expectations. Reputation restoration is about acknowledging fault, repairing the damage, and raising future standards.
Barra has been candid in exposing the faults.
Her challenge in repairing the damage was assuring customers and victims without frightening creditors and investors. By hiring Feinberg, Barra appears to have pleased both key stakeholder groups, boosting GM’s reputation.
Read all of Nir Kossovsky’s Risk Insider contributions.
Configuring Disaster Planning
When Hurricane Sandy struck in October 2012, some folks living in Red Hook in Brooklyn, N.Y., benefited from a little-used technology called mesh to keep the lines of communication open. When the storm caused regular Internet and cell phone networks to go down, a mesh network remained up and running.
Mesh networks were also used by two Australians in the wake of the devastating earthquake that shook Haiti in 2010, when they launched the Serval Project as a way to keep the lines of emergency communications open when cellular and Wi-Fi networks are knocked out.
In that case, Android phones running a special app connected directly with each other to create a “peer-to-peer” network that allowed communication.
“A communications disaster can be completely avoided by having a mesh network ready as a backup that can be executed in a matter of minutes,” said Bob Schena, CEO and co-founder of Rajant Corp., a provider of mesh networking solutions in Malvern, Pa.
In layman’s terms, a mesh is a stand-alone communications network that relies on smart phones or other devices — often, basic routers — to “talk” directly to each other. These small networks may be linked to the Internet via satellite, but that’s not necessary to provide local communications during natural or man-made disasters.
Such a tool should have a role in a company’s disaster plan or claims operations, said Robert Morris, a risk control technology specialist at OneBeacon Technology Insurance, a member of OneBeacon Insurance Group. Morris said today’s mesh networks could include in a disaster recovery plan.
He said communities, first responders or companies could use the Internet to set up a satellite link with a single link on the ground and then configure a mesh Wi-Fi network that allows for local Internet access.
On a larger scale, Morris said, one can set up a long-distance point-to-point link using licensed bands to a remote bandwidth location. As this is usually designed for the signal to travel a long distance, the access points must be mounted at a decent height (15 feet to 20 feet). If the Internet backbone or access is down, then the mesh won’t provide Internet access, but still can be used to set up a Wi-Fi-based network allowing for local communication.
By establishing a mesh network with satellite connectivity as part of its disaster plan, Morris said, a company could enable its workers to access the Internet for information, email and social media.
“Mesh provides a local distribution layer and can support links of a few blocks up to a few miles,” he said, noting that mesh technology is mature and can leverage whatever bandwidth sources are available, and distribute them quickly and simply with minimal training.
“If you add the capability to a disaster plan, of course, it also is important to maintain and test the mesh network equipment, to ensure it can provide the necessary level of connectivity if needed,” he said.
Morris said the main challenges with mesh technology are finding power sources and available mounting locations. He noted that generators and batteries as well as solar and microwind solutions, can be used to provide power.
Schena, of Rajant Corp., said that, while his company has not worked within the insurance industry (it primarily serves mining, telecom, the military and other heavy industrial clients), it has set up many post-disaster mesh networks.
For example, after Hurricane Katrina, Rajant participated in the relief networks by sending several hundred thousand dollars in equipment and personnel to set up multiple networks. This enabled EMS, state highway patrols and fire departments to send and receive emails, and share vital information long before communications and power were restored to the area.
Founded in 2001, following the World Trade Center attacks, Rajant also responded when a tsunami hit Southeast Asia in 2004, quickly setting up a mesh network in a refugee center.
Schena said mesh networks could transition very easily to any company’s disaster planning strategy
“Risk management and insurance are verticals we have thought about but have not pursued yet,” he said. “But it’s very easy kit for most any company to put in place. They could probably plug it into an emergency lighting system, fire it up and get a network going.
“With what we know about our technology, there is no reason a company could not have a low-cost backup data system ready to go,” he said. “They could design it so when power went out, it could still be used within an office or building in any location.”
A Modern Claims Philosophy: Proactive and Integrated
According to some experts, “The best claim is the one that never happens.”
But is that even remotely realistic?
Experienced risk professionals know that in the real world, claims and losses are inevitable. After all, it’s called Risk Management, not Risk Avoidance.
And while no one likes losses, there are rich lessons to be gleaned from the claims management process. Through careful tracking and analysis of losses, risk professionals spot gaps in their risk control programs and identify new or emerging risks.
Aspen Insurance embraces this philosophy by viewing the data and expertise of their claims operation as a valuable asset. Unlike more traditional carriers, Aspen Insurance integrates their claims professionals into all of their client work – from the initial risk assessment and underwriting process through ongoing risk management consulting and loss control.
This proactive and integrated approach results in meaningful reductions to the frequency and severity of client losses. But when the inevitable does happen, Aspen Insurance claims professionals utilize their established understanding of client risks and operations to produce some truly amazing solutions.
“I worked at several of the most well known and respected insurance companies in my many years as a claims executive. But few of them utilize an approach that is as innovative as Aspen Insurance,” said Stephen Perrella, senior vice president, casualty claims, at Aspen Insurance.
“We do a lot of trending and data analysis to provide as much information as possible to our clients. Our analytics can help clients improve upon their own risk management procedures.”
– Stephen Perrella, Senior Vice President, Casualty Claims, Aspen Insurance
Utilizing claims expertise to improve underwriting
Acting as adviser and advocate, Aspen integrates the entire process under a coverage coordinator who ensures that the underwriters, claims and insureds agree on consistent, clear definitions and protocols. With claims professionals involved in the initial account review and the development of form language, Aspen’s underwriters have a full sense of risks so they can provide more specific and meaningful coverage, and identify risks and exclusions that the underwriter might not consider during a routine underwriting process.
“Most insurers don’t ever want to talk about claims and underwriting in the same sentence,” said Perrella. “That archaic view can potentially hurt the insurance company as well as their business partners.”
Aspen Insurance considered a company working on a large bridge refurbishment project on the West Coast as a potential insured, posing the array of generally anticipated construction-related risks. During underwriting, its claims managers discovered there was a large oil storage facility underneath the bridge. If a worker didn’t properly tether his or her tools, or a piece of steel fell onto a tank and fractured it, the consequences would be severe. Shutting down a widely used waterway channel for an oil cleanup would be devastating. The business interruption claims alone would be astronomical.
“We narrowed the opportunity for possible claims that the underwriter was unaware existed at the outset,” said Perrella.
Risk management improved
Claims professionals help Aspen Insurance’s clients with their risk management programs. When data analysis reveals high numbers of claims in a particular area, Aspen readily shares that information with the client. The Aspen team then works with the client to determine if there are better ways to handle certain processes.
“We do a lot of trending and data analysis to provide as much information as possible to our clients,” said Perrella. “Our analytics can help clients improve upon their own risk management procedures.”
For a large restaurant-and-entertainment group with locations in New York and Las Vegas, Aspen’s consultative approach has been critical. After meeting with risk managers and using analytics to study trends in the client’s portfolio, Aspen learned that the sheer size and volume of customers at each location led to disparate profiles of patron injuries.
Specifically, the organization had a high number of glass-related incidents across its multiple venues. So Aspen’s claims and underwriting professionals helped the organization implement new reporting protocols and risk-prevention strategies that led to a significant drop in glass-related claims over the following two years. Where one location would experience a disproportionate level of security assault or slip & fall claims, the possible genesis for those claims was discussed with the insured and corrective steps explored in response. Aspen’s proactive management of the account and working relationship with its principals led the organization to make changes that not only lowered the company’s exposures, but also kept patrons safer.
World-class claims management
Despite expert planning and careful prevention, losses and claims are inevitable. With Aspen’s claims department involved from the earliest stages of risk assessment, the department has developed world-class claims-processing capability.
“When a claim does arrive, everyone knows exactly how to operate,” said Perrella. “By understanding the perspectives of both the underwriters and the actuaries, our claims folks have grown to be better business people.
“We have dramatically reduced the potential for any problematic communication breakdown between our claims team, broker and the client,” said Perrella.
A fire ripped through an office building rendering it unusable by its seven tenants. An investigation revealed that an employee of the client intentionally set the fire. The client had not purchased business interruption insurance, and instead only had coverage for the physical damage to the building.
The Aspen claims team researched a way to assist the client in filing a third-party claim through secondary insurance that covered the business interruption portion of the loss. The attention, knowledge and creativity of the claims team saved the client from possible insurmountable losses.
Modernize your carrier relationship
Aspen Insurance’s claims philosophy is a great example of how this carrier’s innovative perspective is redefining the underwriter-client relationship. Learn more about how Aspen Insurance can benefit your risk management program at http://www.aspen.co/insurance/.
Stephen Perrella, Senior Vice President, Casualty, can be reached at Stephen.email@example.com.