Risk Insider: Marilyn Rivers

Herding Cats

By: | May 9, 2016 • 2 min read
Marilyn Rivers is director of risk and safety for the City of Saratoga Springs. She chairs the PRIMA Institute for the Public Risk Management Association and is chairperson of the RIMS Standards and Practice Council. She was named Public Risk Manager of the Year by PRIMA in 2007. She can be reached at [email protected]

The most enjoyable commercial I’ve ever seen is of a cowboy herding cats. It reminds me of the struggle public risk professionals face in emergency management programming.

Mention emergency management to civilians and you often get a blank stare straight through to oblivion. It’s as if the person is looking for the nearest exit, regardless of who may be standing in their way.

Emergency management planning is serious, though, for the public safety sector. It provides a comprehensive mechanism to fulfill government functions in the time of natural and man-made disasters.

Due diligence requires participation. Participation requires cat herding.

What seems simple and straightforward to emergency management personnel through education, training and table-top exercises often falls horribly short when funds or other resources are requested for that preparation.

We’ve all heard those budget folks at one time or another: “Why so negative? Let’s focus on the positive and not be Debbie Downer, shall we?”

“Hazard mitigation? Are you talking about my last golf game?”

“Are you sure it’s my responsibility? Seems like an awful lot of paperwork for something that may not happen … .”

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Let’s focus, folks. Risk professionals know that due diligence in the planning stages allows government to successfully mitigate impending disaster by utilizing known resources to their fullest potential. Due diligence requires participation. Participation requires cat herding.

I have found it’s best to discuss emergency management planning with your workforce in their terms.

For engineering, that means land surveys, water mitigation, facility management, and mechanical and electrical redundancies.

For public works: Think asphalt, sand, roadways and environmental management.

Finance thinks in budgets. Purchasing is equipment, supplies, energy and fuel. Human resources provides the people who move all the parts to make the whole.

Law, fire and emergency management personnel … well … let’s all think of them as the cowboys who try and keep us all on track in the event of our emergency.

The federal government does an admirable job putting together basic emergency management templates we may all use to communicate across this vast country during a time of need.

This basic programming provides step-by-step planning for a myriad of circumstances — identifying roles and responsibilities and provoking questions for each of us in order to best identify our roles as needed and to speak in one language as necessary.

It’s important to explain to local municipal officials that federal funding follows federal education, training, planning and preparation. The better prepared your community is, the more likely is its ability to best manage a disaster at its onset and during recovery.

Encourage the use of the universal language of the National Incident Management System. It might go a long way in providing useful dialogue for even the smallest of community disruptions, including your local parade, an electrical outage or a bad storm headed your way.

Encouraging independence, innovation and trust in the details will go a long way in managing your emergent situations.

Marilyn Rivers’ views are her own and don’t represent the City of Saratoga Springs.

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Political Risk

Enabling Expansion

Political risk and trade credit insurance offer protection against uncertainty and pave the way for global growth.
By: | April 28, 2016 • 6 min read
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Despite the rising tide of political and economic turmoil in the world, the cost of buying political risk coverage and trade credit insurance is declining even as demand is sharply increasing.

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“The pricing has become much more competitive,” said New York-based Lila Rymer, head of U.S. underwriting for political risks and trade credit at Beazley. “A lot of new entrants and more capacity in the market has driven this competition.

“So it’s a very good time for clients to consider buying political risk and trade credit insurance because the terms are quite favorable,” Rymer said.

New York-based Stuart Barrowcliff, senior underwriter, political risk for XL Catlin, added that capacity is growing because it is a way for insurers to diversify and expand offerings beyond P&C “where there’s obviously lots and lots and lots of capacity and tremendous pressure on premium.”

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Lila Rymer, head of U.S. underwriting for political risks and trade credit, Beazley

A report by Marsh noted that political risk insurance capacity has steadily increased over the past decade, particularly since the financial crisis. In some cases, market capacity for a single policy now exceeds $2 billion, nearly double the available capacity just six years ago, the report said.

Likewise, the increase in trade credit insurance in that period has grown considerably, driven by — among other things — E&S insurers entering the market, as well as banks, other financial institutions and Lloyd’s syndicates making major inroads in this market.

“You also see some of the private equity companies, hedge funds and others who are looking at putting together funding vehicles to invest in trade finance assets and they can come to the trade credit insurance markets to sit behind them,” said Jeff Abrahamson, Baltimore-based global head of supplier trade credit for XL Catlin.

Comprehensive Coverage

In years past, companies and financial institutions might typically buy stand-alone political risk coverage, said Owings, Md.-based James Daly, president and CEO of Euler Hermes Americas.

James Daly, president and CEO, Euler Hermes Americas

James Daly, president and CEO, Euler Hermes Americas

“But the trend today is to purchase comprehensive coverage, which includes protection against both trade credit losses and political risks,” Daly said.

“Traditional trade credit insurance adds another layer of comfort, protecting against bad debt losses when a customer simply does not pay its bills.”

Political risk insurance protects foreign assets held by multinational corporations, financial institutions, investors and project contractors against the risks of confiscation, expropriation, contract frustration and nationalization, Daly said.

“In addition to providing protection for trade transactions, it may also cover production facilities, equipment, offices, refineries and other fixed assets and equity investments,” Daly said.

Political risk circumstances usually include war, terrorism, riots and actions by local governments, such as changes in export or import regulations that affect the outcome of a transaction.

“Traditional trade credit insurance adds another layer of comfort, protecting against bad debt losses when a customer simply does not pay its bills.” — James Daly, president and CEO, Euler Hermes Americas

Fredrik Murer, New York-based head of Americas, political and credit, for Chubb, noted that political risk and trade credit insurance offer balance sheet protection in an uncertain world.

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“Tremendous volatility entered world markets when the commodity super cycle burst,” said Murer.

“The rapid drop in oil prices created upheaval in country and corporate balance sheets alike, creating both political and credit risks in the process.

“Foreign exchange fluctuations add to the stress on U.S. dollar payment obligations. What started as an economic risk may quickly become a political or credit risk as countries act to protect their local interests.”

Corporations and banks are the major buyers of trade credit insurance.

“Banks might buy an annual trade credit policy that we have the option of renewing,” said Beazley’s Rymer.

“When a company is selling goods to a buyer, for example a Brazilian buyer, a bank might purchase the receivables from the supplier. If the supplier is due to get paid in 60 days, the supplier might say, ‘I want to be paid tomorrow.’

“By selling the receivables to a bank, the bank can cash out the supplier up-front and then the buyer owes the money to the bank.”

Rymer added that when banks invest in bigger projects in emerging markets, say a mine or an oil field, they are likely to seek political risk coverage or more comprehensive credit insurance on the investment they’re making.

XL Catlin’s Abrahamson said that other clients are non-bank financial institutions that are providing working capital for corporate clients.

“Banks are using trade credit insurance as a real driver on the trade risk receivables side,” he said.

“A lot of banks will finance receivables for their customers and procure insurance on that financing. This can help them more efficiently utilize their capital.”

Growth Strategy

For corporations, maintaining trade credit insurance and often political risk coverage along with it has become an increasingly important way to expand their business.

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“It’s not just about mitigating risk, but very often trade credit insurance helps companies grow their business, so they can increase their lines of credit and expand the business they are already doing,” said Rymer.

“It might help a company access financing through their lending bank. By having trade credit insurance on their buyers they’ll be able to get bigger lines of credit from their lending partners.”

Or if a company is internally very comfortable with a certain limit to a buyer where they see an opportunity to grow, they can credit insure those receivables, which may enable them to extend a bigger line of credit to that buyer and grow overall sales, she said.

Chubb’s Murer noted that political risk coverage and trade credit insurance provide a company with more certainty.

“With this insurance, if the unexpected happens you know there’s a level of protection against an outcome that can be catastrophic to your continued operations,” he said.

Gregg Badger, COO, Ronald A. Chisholm Limited

Gregg Badger, COO, Ronald A. Chisholm Limited

“A company can invest and grow its sales base with more certainty and lenders can benefit as they support the continued expansion of their corporate customers.”

Added Gregg Badger, COO for international food merchant Ronald A. Chisholm Limited, “If we did not have trade credit insurance and political risk coverage we would be hard-pressed to do any borrowing against our non-North American receivables.”

Badger said that 60 percent to 80 percent of Chisholm’s business is outside of North America and the company needs that working capital to keep it operating and growing. Chisholm actively does business with hundreds of companies in 50 to 60 countries, he said.

When the company’s salespeople are out looking for new customers and trying to open up new markets, one of the first steps they take is to see whether the customer they’re calling on is creditworthy, i.e., insurable or whether it’s on open credit or on secured terms, Badger said.

Managing the risk of accounts receivable, customers and processes allows the company to assure its banking syndicate that the receivables are insured, he said.

Steve Yahn is a freelance writer based in New York. He has more than 40 years of financial reporting and editing experience. He can be reached at [email protected]
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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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