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Risk Management

The Profession

Rite Aid's Ryan McGuinness sees reasons to be optimistic about the U.S. economy.
By: | October 15, 2014 • 3 min read

R&I: What was your first job?

I was a claims examiner for former TPA GAB Robbins.

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R&I: How did you come to work in risk management?

My predecessor at Rite Aid was leaving for another position outside the company and thought I’d be a good fit for Rite Aid. That’s how it all started. I had been working locally with PMA Insurance at the time as a claims examiner. It was a job opportunity. When I first got here I worked as a claims manager. Quickly, my interest was sparked in risk management as I was exposed to all aspects of the industry.

R&I: What is the risk management community doing right?

Risk managers have continued to do a much better job at risk identification and quantifying risk. As a result, I’d say that, today, risk managers are in a much better position to analyze and mitigate risk.

R&I: What could the risk management community be doing a better job of?

Capitalizing on opportunities to develop stronger partnerships with business partners within our own organizations and helping to educate them on recognizing and avoiding loss.

R&I: What sorts of challenges have colleagues been able to help you tackle?

Ryan J. McGuinness, senior director risk management, Rite Aid Corp.

Ryan J. McGuinness, senior director risk management, Rite Aid Corp.

The insurance and broker communities have significantly evolved in developing innovative ways to help measure and quantify risk, which, in turn, helps risk managers respond to the changing insurance landscape.

R&I: What was the best location for the RIMS conference and why?

San Diego. It’s a really nice venue. The convention center is centrally located and the city itself seems uniquely capable of accommodating large crowds.

R&I: What’s been the biggest change in the risk management and insurance industry since you’ve been in it?

The emergence of cyber risk and cyber liability.

R&I: Besides the cyber issue, what emerging commercial risk most concerns you?

The rising cost of health care as it relates to workers’ compensation.

R&I: Is the contingent commission controversy overblown?

I think the contingent commission controversy is past at this point and I have considered it to be overblown, yes.

R&I: How much business do you do direct versus going through a broker?

None.

R&I: Are you optimistic about the US economy or pessimistic and why?

I am optimistic. Despite the news we see today, there are a lot of good signs the economy is returning. For instance, I think in the retail sector people are beginning to spend more money now than in years past.

R&I: What is your favorite book or movie?

My favorite book is “Last of the Mohicans” by James Fenimore Cooper.

10152014_profession_sidebarR&I: What’s the best restaurant you’ve ever eaten at?

Ray’s at Killer Creek in Alpharetta, Ga.

R&I: What would you do if you weren’t a risk manager?

I would be a youth counselor and fish much more.

R&I: Who is your mentor and why?

Jim Lott. He was the risk manager here at Rite Aid until 2004, when he retired. He’s the one who got me excited about risk and insurance. Through him, I learned about how the insurance procurement and placement process works, and really became interested in the business.

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R&I: How many emails do you get in a day?

In the last 6 months I have received or exchanged over 8,000 emails.

R&I: If the world has a modern hero, who is it and why?

Derek Jeter. Simply, he exemplifies good values both on the field and off the field.

R&I: What is the most unusual/interesting place you have ever visited?

Bertchesgaden, Germany. It’s situated in the Alps, and very picturesque.

“I like working a project from start to end, and I like partnering with groups of people working towards a common goal and achieving the results we set out to accomplish.”

R&I: What about this work do you find the most fulfilling or rewarding?

Results. I like working a project from start to end, and I like partnering with groups of people working towards a common goal and achieving the results we set out to accomplish.

R&I: What do your friends and family think you do?

They think I am just in insurance, although they have a remote understanding of what risk management actually entails.

Janet Aschkenasy is a freelance financial writer based in New York. She can be reached at riskletters@lrp.com.
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Column: Risk Management

Safe but Stifling

By: | October 15, 2014 • 3 min read
Joanna Makomaski is a specialist in innovative enterprise risk management methods and implementation techniques. She can be reached at riskletters@lrp.com.

Is doing the safe thing the way to have a better result? Or does it lead to your ultimate detriment? That’s a question worthy of an experiment. As for the results, you have them here in my golfer’s (or CEO’s) guide to risk management.

I love golf. It is truly a great sport. It is a perfect balance of risk and reward — a battle of mental and physical abilities.

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It is a game you play against yourself and within yourself. At the end of a day, you add up your score and know that you, and only you, own that score. There is no one to blame or steal the reward. It is all on you. I love that.

As of late, I started to focus on the impact of taking risks when playing. I wondered: If I were to take more risks while playing, would I score better? Would my risk-taking give me more rewards?

So I decided to conduct an experiment. In two rounds this month, I implemented two completely opposite risk strategies.

For the first game, I decided to play very conservatively.

I would lay-up if I thought I might get into trouble. I would use a lesser club off the tee just to keep the ball in play. While swinging, I only focused on striking the ball with an easy, smooth rhythm.

But does playing it safe and risk-free make you a winner in the long run? I played easy golf and scored well but for some reason I didn’t feel very satisfied.

My key objective was to consistently follow a process. I wanted to assure good form for each and every swing, every strike, every ball flight. I didn’t want to hit a stray shot, lose a ball, or exhaust myself beating the club into the ground.

For the next game, I went for the gusto. I took every risk I could. My focus was to make birdie on every hole. No, I wanted to make eagle on every hole. My objective was to sink every putt. Never leave a putt short. I didn’t care what my swing looked or felt like.

Indeed, I hit some majestic shots. Soaring, flying, drifting, fading, hooking, slicing, everywhere you could imagine. I lost nine balls that round and received nine penalty strokes. I was exhausted by the end.

I set my expectations so high that when I failed, I was angry and frustrated. The angrier I got, the harder I swung. The harder I swung, the less accurate I was.

When I compared the two games, I absolutely scored better by playing it safe. I hit the ball easily and it went where I expected it to go. I didn’t lose any balls and therefore didn’t have any penalty strokes. Because I set my goals with the process in mind, I didn’t care that I didn’t make par on every hole.

But does playing it safe and risk-free make you a winner in the long run? I played easy golf and scored well but for some reason I didn’t feel very satisfied. I had this nagging feeling that I could have done better. I didn’t feel as though I pushed myself. I played the easy route. Less risk meant less reward.

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In the full throttle game I played as hard as I could and my voracious risk appetite caused me to score quite poorly. But somehow that form of play left me with more optimism. I imagined harnessing my best holes and repeating them for 18 consecutive holes next time. It was aspirational play.

So when it comes to defining risk appetite, I realized it is a truly tricky concept. In business, we routinely have to balance risk and reward in the pursuit of organizational perfection — the aspiration of all leaders — the perfect round, the perfect deal, the perfect presentation, the perfect opportunity.

If we don’t strive to be the best we can be, if we settle for mediocrity we may never maximize our potential.

And we may never win the green jacket.

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Sponsored: Liberty International Underwriters

A Renaissance In U.S. Energy

Resurgence in the U.S. energy industry comes with unexpected risks and calls for a new approach.
By: | October 15, 2014 • 5 min read

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America’s energy resurgence is one of the biggest economic game-changers in modern global history. Current technologies are extracting more oil and gas from shale, oil sands and beneath the ocean floor.

Domestic manufacturers once clamoring for more affordable fuels now have them. Breaking from its past role as a hungry energy importer, the U.S. is moving toward potentially becoming a major energy exporter.

“As the surge in domestic energy production becomes a game-changer, it’s time to change the game when it comes to both midstream and downstream energy risk management and risk transfer,” said Rob Rokicki, a New York-based senior vice president with Liberty International Underwriters (LIU) with 25 years of experience underwriting energy property risks around the globe.

Given the domino effect, whereby critical issues impact each other, today’s businesses and insurers can no longer look at challenges in isolation one issue at a time. A holistic, collaborative and integrated approach to minimizing risk and improving outcomes is called for instead.

Aging Infrastructure, Aging Personnel

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Robert Rokicki, Senior Vice President, Liberty International Underwriters

The irony of the domestic energy surge is that just as the industry is poised to capitalize on the bonanza, its infrastructure is in serious need of improvement. Ten years ago, the domestic refining industry was declining, with much of the industry moving overseas. That decline was exacerbated by the Great Recession, meaning even less investment went into the domestic energy infrastructure, which is now facing a sudden upsurge in the volume of gas and oil it’s being called on to handle and process.

“We are in a renaissance for energy’s midstream and downstream business leading us to a critical point that no one predicted,” Rokicki said. “Plants that were once stranded assets have become diamonds based on their location. Plus, there was not a lot of new talent coming into the industry during that fallow period.”

In fact, according to a 2014 Manpower Inc. study, an aging workforce along with a lack of new talent and skills coming in is one of the largest threats facing the energy sector today. Other estimates show that during the next decade, approximately 50 percent of those working in the energy industry will be retiring. “So risk managers can now add concerns about an aging workforce to concerns about the aging infrastructure,” he said.

Increasing Frequency of Severity

SponsoredContent_LIUCurrent financial factors have also contributed to a marked increase in frequency of severity losses in both the midstream and downstream energy sector. The costs associated with upgrades, debottlenecking and replacement of equipment, have increased significantly,” Rokicki said. For example, a small loss 10 years ago in the $1 million to $5 million ranges, is now increasing rapidly and could readily develop into a $20 million to $30 million loss.

Man-made disasters, such as fires and explosions that are linked to aging infrastructure and the decrease in experienced staff due to the aging workforce, play a big part. The location of energy midstream and downstream facilities has added to the underwriting risk.

“When you look at energy plants, they tend to be located around rivers, near ports, or near a harbor. These assets are susceptible to flood and storm surge exposure from a natural catastrophe standpoint. We are seeing greater concentrations of assets located in areas that are highly exposed to natural catastrophe perils,” Rokicki explained.

“A hurricane thirty years ago would affect fewer installations then a storm does today. This increases aggregation and the magnitude for potential loss.”

Buyer Beware

On its own, the domestic energy bonanza presents complex risk management challenges.

However, gradual changes to insurance coverage for both midstream and downstream energy have complicated the situation further. Broadening coverage over the decades by downstream energy carriers has led to greater uncertainty in adjusting claims.

A combination of the downturn in domestic energy production, the recession and soft insurance market cycles meant greatly increased competition from carriers and resulted in the writing of untested policy language.

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In effect, the industry went from an environment of tested policy language and structure to vague and ambiguous policy language.

Keep in mind that no one carrier has the capacity to underwrite a $3 billion oil refinery. Each insurance program has many carriers that subscribe and share the risk, with each carrier potentially participating on differential terms.

“Achieving clarity in the policy language is getting very complicated and potentially detrimental,” Rokicki said.

Back to Basics

SponsoredContent_LIUHas the time come for a reset?

Rokicki proposes getting back to basics with both midstream and downstream energy risk management and risk transfer.

He recommends that the insured, the broker, and the carrier’s underwriter, engineer and claims executive sit down and make sure they are all on the same page about coverage terms and conditions.

It’s something the industry used to do and got away from, but needs to get back to.

“Having a claims person involved with policy wording before a loss is of the utmost importance,” Rokicki said, “because that claims executive can best explain to the insured what they can expect from policy coverage prior to any loss, eliminating the frustration of interpreting today’s policy wording.”

As well, having an engineer and underwriter working on the team with dual accountability and responsibility can be invaluable, often leading to innovative coverage solutions for clients as a result of close collaboration.

According to Rokicki, the best time to have this collaborative discussion is at the mid-point in a policy year. For a property policy that runs from July 1 through June 30, for example, the meeting should happen in December or January. If underwriters try to discuss policy-wording concerns during the renewal period on their own, the process tends to get overshadowed by the negotiations centered around premiums.

After a loss occurs is not the best time to find out everyone was thinking differently about the coverage,” he said.

Changes in both the energy and insurance markets require a new approach to minimizing risk. A more holistic, less siloed approach is called for in today’s climate. Carriers need to conduct more complex analysis across multiple measures and have in-depth conversations with brokers and insureds to create a better understanding and collectively develop the best solutions. LIU’s integrated business approach utilizing underwriters, engineers and claims executives provides a solid platform for realizing success in this new and ever-changing energy environment.

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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 International Underwriters. The editorial staff of Risk & Insurance had no role in its preparation.


LIU is part of the Global Specialty Division of Liberty Mutual Insurance.
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