Can Brokers Keep Pace?
Technology and globalization offer opportunities for innovation, expansion, increased efficiency and improved customer service. But they also involve a rapid pace of change — and evolving risks — that keep every company on its toes.
“Changing global landscape, economy, regulatory environments, technology … this is changing the way companies manage both their financial and human resources,” said Tim DeSett, executive vice president of risk practices, Lockton.
“For brokers, this is really a transformational opportunity.”
The traditional role of the broker is transactional. A company hires a broker to buy insurance. But that model has been changing for years, with brokers becoming consultants and risk advisers in addition to procurers of policies.
“The traditional ways are shattered,” said Mary Ann Cook, senior vice president, risk and insurance knowledge group at The Institutes, a leading education provider for the industry.
“Those brokers that come to terms with that more quickly will be the ones out in front.”
But if brokers are to be effective risk consultants, they have to be a half-step ahead of the pace of change, anticipating the challenges their clients will face and understanding what mitigation strategies best fit their long-term goals and capabilities.
That takes a mix of forming key relationships and expertise within a client’s industry, and gaining a deep understanding of data.
Broker as Expert Consultant
“The best brokers are businesspeople,” said Brian Elowe, managing director, global risk management, Marsh.
“In a fast-paced world, I don’t see how you can be an effective adviser to a client without specializing in their industry. Client organizations have higher expectations that they won’t have to train their broker, but that the broker will bring insights to the table.”
To best understand a client’s risk, it is incumbent upon brokers to familiarize themselves with every aspect of the client’s business, from macro industry trends, to the regulatory environment, to the strength of its competitors in the market, and down to the nuts and bolts of their operations and financial standing.
Today, brokers also have to take into consideration a broad range of issues like the impact of increasingly unpredictable weather, migration patterns and political climate, impending local regulatory changes, and the now eternal question of data security. Conversations with experts are often the easiest and most reliable way to stay updated on broad trends.
The Institutes, in the course of assembling its seminars and educational materials, seeks input from policymakers and legislators, regulatory bodies, the NAIC, various conference attendees, social media platforms and multiple advisory groups.
Additionally, “belonging to industry associations is a great way to ensure you’re around the conversation of what those businesses are facing, and what strategies they’re developing in response,” Elowe said. “Our account executives are really experts in health care, technology, real estate or whatever sector they’re serving.”
Marsh works with several organizations to put together its annual global risk report, which is presented at the World Economic Forum each year.
Elowe described the process of consulting with leading economists, often working with the world’s top universities, as “an opportunity to challenge our thinking and get a better idea of the conversations we should be having with our clients.”
That in-depth understanding is critical if brokers want to get the attention of the C-suite.
“To have a conversation at that level, we need to translate our risk management initiatives into language that relates to the company’s goals and objectives, and what global resources are available,” DeSett said.
“To do that, we have to know what they’re saying to Wall Street and to their shareholders.”
The broker’s role as a consultant also involves adjusting to greater demand for alternative risk transfer strategies that don’t involve insurance. Emerging exposures like cyber, climate, political and reputational risks are often difficult to insure in the traditional market, pushing more risk managers to look for creative ways to retain it themselves.
“As a broker, it’s about ensuring capital efficiency and helping clients set up internal finance mechanisms to prepare for risks that may not be insurable,” Elowe said.
“Pooled risks and captives are situations where a broker wouldn’t be involved in a transaction, but would fill a role providing guidance to clients on how to utilize those models,” said Cook of The Institutes.
Big Data and predictive analytics also are useful tools in identifying emerging risks and vulnerabilities, but could also be a stumbling point for brokers as technology continues to evolve.
“Big Data is an incredible asset and opportunity to leverage, but takes a lot of energy to manage and can also be a distractor,” DeSett of Lockton said.
“Predictive analytics is a tool that should be a part of a broader strategy of measuring potential outcomes of potential risks.”
To paint a picture of just how rapidly data has grown as an asset for businesses, the McKinsey Global Institute (MGI) estimated that U.S. retailer Wal-Mart’s data warehouse in 1999 held about 100 terabytes of stored data; by 2009, nearly every sector in the U.S. economy was gathering and storing at least twice that amount.
Fifteen of 17 U.S. sectors have more data stored per company than the U.S. Library of Congress, it said.
McKinsey also projected 40 percent growth in global data per year, although with only 5 percent global growth in IT spending, according to its 2011 report, “Big Data: The Next Frontier for Innovation, Competition and Productivity.”
The insurance industry in particular not only has access to large amounts of data gathered from policyholders, but also the analytical talent to process it in its field of actuaries.
The study by MGI analyzed nine occupations that require the skills needed to execute big data analytics and in what industries they could be found, based on reporting by the U.S. Bureau of Labor Statistics.
Insurance carriers employed more of these individuals than any other segment included in the study, which also included telecommunications and internet service providers. In 2009, insurance carriers employed about 18,400 people considered to have “deep analytical talent;” the runner-up, scientific research and development, employed 13,000.
The report concluded that the financial services and insurance industry is “positioned to benefit very strongly from big data as long as barriers to its use can be overcome.”
Brokers have the opportunity — the obligation, even — to tap into carriers’ wealth of data and analytical talent.
“It will be critical to partner with a carrier willing to work with brokers on the analytics side,” Cook said.
“The data wars are coming. Brokers have to be able to capture it and work with it better; don’t defer an obligation to help clients build out an insurance program today that is comprehensive, flexible and integrated with data analytics.”
DeSett said, however, that barriers to effective use of data analytics are significant. The ability to store large amounts of data and run analytical software requires heavy investment in technology updates and training.
Aggregating large amounts of data is a useful tool for spotting trends, Elowe said, but it remains difficult to “get out in front” of emerging issues. Even those organizations with access to data and the talent to utilize it will struggle to keep up with new analytical tools and techniques.
For now, brokers’ predictive capabilities may be behind the pace. But this may be an even stronger reason for brokers to, as Elowe advocated, “Get a higher level of understanding of the business first, risks second.” &
International Travel Risk: Can You Keep Your Workers Safe Abroad?
When employees traveling the globe suffer a health or safety incident, it can leave them wondering where to turn. Here’s what you need to know to prepare for an emergency overseas.
Companies need a face-to-face presence to cement overseas business relationships. That’s inarguable. Less clear is what resources employees will have available to them should they become ill or injured in a natural or manmade event in a foreign country. This is the outcome of what UnitedHealthcare Global refers to as “healthcare insecurity,” and it can lead employees to make less-than-optimal care decisions in emergency situations.
Adding to the complexity is the fact that many overseas employees bring dependents with them who could also be placed in harm’s way.
This one-hour webinar will delve into the risks that overseas employees face, and the combinations of insurance and benefits that should be considered to protect valuable human resources and a company’s bottom line.
An expert panel will discuss:
- Pre-Travel Prep. Clear policies should spell out what kinds of support an employee can expect when deployed overseas and where to turn at a moment of crisis.
- Finding Local Care. Companies can avoid delaying care by accurately identifying local health care options and understanding local norms.
- Security Updates. Global programs can provide employees with timely updates on issues that could impact their health and well-being, including political instability, pandemics, or terror threats.
- Aligning Vendors. A streamlined approach to vendor services for overseas employees might be the right fit.
- Insurance. Finding the right mix of insurance coverages to both protect the company’s bottom line and provide for the health and welfare of overseas staff.
From Drones to Defects: Planning for Construction’s Top Challenges
The construction industry is firing on all cylinders. New projects spring up every day, but not all go according to plan.
Three out of every four construction projects fail to finish on time. Every party involved – owners, designers, contractors and subcontractors – expects perfection, with the final product delivered on schedule and on budget. Those expectations leave little room for uncertainty, so even a small hiccup can have ripple effects that disrupt a project for everyone.
“There’s often a big disconnect on the front end of project planning,” said Doug Cauti, Senior Vice President, National Insurance, Chief Underwriting Officer, Construction, Liberty Mutual.
Proactive risk mitigation is also important to manage emerging challenges facing the construction industry ‒ drone regulations are evolving, commercial auto losses are rising, and so is uncertainty about which party might be held responsible for a construction defect. Without the proper planning, these issues can easily be overlooked and result in major losses and project disruption.
Liberty Mutual’s Doug Cauti discusses key challenges facing the construction market.
“Key risk management strategies have to be aligned among all parties from the beginning to minimize these uncertainties.”
Before construction begins, there are actions that project owners, designers and contractors can take to address these challenges and better protect their projects and businesses:
Drones can be useful tools on construction sites, providing an extra set of “eyes” for large commercial projects or tall buildings. They provide a real time aerial glimpse of works in progress, giving supervisors an added perspective to spot potential flaws, assess safety hazards, and check on workers. But many challenges remain in the safe — and legal — operation of drones.
Liberty Mutual’s interactive infographic highlights risks related to managing drones at construction sites, and also includes a pre-planning drone use guide and a pre-flight checklist that includes making sure to review the latest drone regulations.
How construction buyers can manage the insurance implications of using drones in their operations.
General contractors and project owners need to stay up to speed on FAA regulations, which changed in August, 2016.
“For one thing, operators need to have the drone in sight at all times,” Cauti said.
“And you need to make sure any operators are appropriately licensed and trained, that the drones are regularly maintained, and that the machines don’t impede on others’ safety and privacy.”
Clear flight paths and work zone boundaries can minimize the risk of a drone striking another property, or worse, a person. Operators should also know how to conduct an emergency landing if the drone suddenly loses power. It’s also important to consider how you are going to manage and use drone footage. Advertising liability can be a concern if third party images are captured and released. Know who is in charge of the data collected, who has access to it, and how you are going to protect it.
“If the contractor owns the drone, it takes on more liability. The contractor should review its insurance policies to make sure the coverage will respond to that risk,” Cauti said.
“As an insurance carrier, we may have a role to play in those proactive discussions. We are uniquely positioned to help project stakeholders see their risks and work to minimize them.”
— Doug Cauti, Senior Vice President, National Insurance, Chief Underwriting Officer, Construction, Liberty Mutual Insurance
Contractors and project owners can protect themselves through enhancements to their commercial general liability policies or through separate aviation policies, he said.
If a general contractor leases a drone through a third party, “they bear the responsibility of making sure the vendor is fully insured,” Cauti said. Vendors should have “non-owned” aviation coverage with limits suitable to handle the size of the risk.
Commercial auto losses challenge many business sectors, and construction is no exception.
More vehicles on the road and more miles driven, combined with fewer experienced commercial drivers, are driving up the frequency of accidents. On construction sites in particular, congestion created by closed roads, piles of materials and roving heavy machinery may lead to work zone accidents. Rising medical costs and repair and replacement costs of high-tech vehicles increase claim severity.
“I don’t see this trend reversing any time soon,” Cauti said.
Mitigating commercial auto losses begins with driver hiring practices.
“Pay attention to who you put behind the wheel,” Cauti said.
“Motor vehicle reports (MVRs) and driving history can alert employers to previous accidents or tickets. But there also needs to be regular communication with the drivers you do hire, and clear protocols in place that define expectations of how the job should be performed,” he added.
Ways construction buyers can manage rising commercial auto loss costs and better protect their fleets and employees.
Those protocols include requiring the use of seat belts, prohibiting cell phone use while behind the wheel, mandating scheduled breaks, outlining maintenance procedures, defining if company vehicles can be used for personal use, and establishing crash report procedures that delineate who to contact and what information to collect in the event of an accident.
Contractors can also monitor fleet performance through telematics systems. These on-board systems can track unsafe driving behaviors like hard braking, sharp turns, and speeding. But the data is only as good as the person analyzing it. Contractors and project owners should partner with an insurer who can use fleet telematics data effectively to pinpoint common causes of accidents and recommend specific risk mitigation strategies.
Liberty Mutual’s Managing Vital Driving Performance is one tool that leverages insureds existing telematics data to identify unsafe driving behaviors and accident patterns.
“Our risk control consultants can drill deeper into the data and interview drivers to identify patterns and find out the root causes of bad driving behaviors in the first place,” Cauti said.
For example, a post-accident interview with a driver could reveal that he had been skipping breaks and spending too many hours on the road, leading to fatigue and inattentive driving.
Identifying those connections enables consultants to make specific risk mitigation recommendations, such as adjusting drivers’ schedules and workloads to reduce overtime, or adjusting dispatch protocols so employers can ensure drivers aren’t working too many shifts in a short period of time.
Another uncertainty project owners, designers and contractors have to face is how insurance coverage will apply should a project end up in a dispute. “The struggle is around the definition of ‘faulty workmanship’ and who is responsible for the defect. Is it in the design or the build?” Cauti said.
“There can be a lot of finger pointing involved. This reinforces the need for contractors to have a systematic quality assurance (QA) program that adheres to best practices, and for every party to have a role in it.”
Elements of a QA program could include testing of construction materials, conducting regular walk-throughs and obtaining approvals from the owner at key phases, and final sign-off by the owner at the project’s completion.
How construction defects and the current legal climate are affecting projects.
Construction defect claims can affect a business’s reputation, profits, and ability to maintain insurance coverage. That’s why it’s so important to be vigilant about avoiding construction defects, whether you’re a designer, developer, owner or general contractor.
Ultimately, though, these risks should be addressed before ground is broken. Discussing these challenges and collaborating on loss prevention strategies up front reduces the likelihood that any “hiccups” will throw off project timelines or increase costs for the various stakeholders.
Pre-planning discussions also offer the opportunity for these parties to take advantage of carrier partners’ risk control services.
“As an insurance carrier, we may have a role to play in those proactive discussions,” Cauti said.
“We are uniquely positioned to help project stakeholders see their risks and work to minimize them.”
To learn more about Liberty Mutual’s solutions for the construction industry, visit https://business.libertymutualgroup.com/business-insurance/industries/construction-insurance-coverage.
 Managing Uncertainty and Expectations in Building Design and Construction SmartMarket Report
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.