Like everyone else, I shop at Target, Home Depot and TJ Maxx and as a consequence of their security breaches and for my future protection, I have had to exchange my credit card several times.
Although I am very careful about sharing personal data and keep a shredder very busy, clearly the companies with whom I do business have vulnerabilities that they and I were unaware of.
Such vulnerabilities impact our industry as well.
In July, the Consero group conducted a survey of Fortune 1000 companies that indicated that 65 percent of their executives do not believe their vendors are sufficiently focused on minimizing risk.
We are in an industry where vendors abound and we rely heavily on them to provide services to our clients, our employees, our medical and ancillary providers, and to each other.
What are the risks if our vendors do not meet the highest standards and have vulnerabilities that affect the various stakeholders in our business?
Data security – We must be certain that all the data we collect and share (much of which is highly personal and confidential) is secure. How can we be sure that all of our vendors have the “right” level of controls to keep all of your and your client’s data secure?
Financial impact – Financial transactions are at the core of our businesses. In today’s highly technology-based business practices, many of these transactions are performed electronically. How do you know if your and your vendor’s systems are protected against unauthorized access?
Compliance/regulatory impact – Is your vendor’s system processing complete, accurate, timely, regulatory compliant and authorized?
Controls – Exactly what controls do your vendors have in place to prevent the security breaches that have become all too frequent?
Remember the SAS 70? Since 1992, SAS 70 has provided the auditing standard guidance for internal controls, including IT-related controls, of service organizations.
However, two key authorities, the American Institute of Certified Public Accountants (AICPA) and the International Auditing and Assurance Standards Board (IAASB) identified the limits of the SAS 70 and acknowledged the need for greater controls.
Certainly, our recent experience of all types of security breaches would indicate that we do need to do more. Thus in 2011, new standards specifically for service organizations were developed with the SSAE 16 Trust Services Principles and Criteria.
Sparrow, Johnson and Ursillo, a full service accounting and technology firm serving a wide variety of clients all over the country including members of the banking community, describes the SSAE 16 standards this way:
“These attestation standards address engagements undertaken by a service auditor for reporting on controls at service organizations that provide services to user entities (customers). User entities in reality take on many of the risks of their outsource partners. These attestation standards provide the framework for CPAs to report on the internal controls over financial reporting as well as compliance and operations of the service organizations in order to determine and demonstrate the effectiveness of internal controls.”
With these new standards, entities can describe and document more precisely how services are being delivered and how controls are utilized within finance, operations and compliance. This new certification can be utilized to identify risks, evaluate the effectiveness of internal controls and provide assurances that we all need as it relates to our vendor partners.
Focus on Vendors
I would suggest that you make this a high priority in your organization. We are, after all, in the business of risk management and we need to ensure that our vendors/partners are as focused as we are on minimizing risks.
Ask yourself these questions:
• How do you know that your vendors are doing what it takes to protect your systems and data?
• Have you talked to your vendor partners about their internal controls as they relate to their business with you?
• Is your vendor management department knowledgeable about the Trust Service Principles?
• Are you — or should you be — requiring your vendors to be SSAE 16 compliant?
All of us need to be more vigilant and better protected against security breaches. Are you and your company as protected as you need to be?
Building Resilience From Top to Bottom
Access to accurate and timely information is essential to crafting a world-class supply chain risk management program, where tightly integrated networks are dependent on a myriad of factors for their smooth operation. And while a supplier’s ability to withstand natural hazards and fire is vital, it is equally important to understand the economic climate in each supplier’s country of origin.
Many supply chains are far-flung enterprises often involving dozens of countries and sometimes hundreds of organizations, each producing different components that come together in a finished product.
If a second-tier supplier is responsible for a significant proportion of a particular manufactured item and is exposed to a country’s looming political upheaval, the risk cannot be ignored. Likewise, when a company’s supply chain is scattered across the world, it may confront other perils including currency fluctuations, inconvertibility and credit availability — to name a few. Vital capital investment and resource allocation decisions may need to be made, including shifting production to a supplier somewhere else in the world.
And while many companies understand the risk factors that can cause disruptions at their top tier suppliers, they may be less cognizant of economic factors within a country that can affect suppliers’ suppliers. As the first tier outsources production to organizations in China, Thailand, India, Hungary, Malaysia, the Philippines, Vietnam and other developing economies, they may unknowingly create risk for themselves and their own customers, unaware of brewing economic threats.
It’s not surprising that many supply chains unravel in the aftermath of economic and political upheaval — somehow a third-tier supplier’s vulnerability was overlooked, causing production to decrease if not come to a halt. Bottom line: True supply chain resilience depends on the risk quality of each supplier in the network, each of them potentially exposed to a hornet’s nest of risk inherent to the countries where they are based.
Unfortunately, many organizations fail to scrutinize through an economic lens how resilient countries are to supply chain disruption. Without the ability to make more informed decisions, these organizations are flying somewhat blindly, their supply chains a network of weak links.
As the first tier outsources production to organizations in China, Thailand, India, Hungary, Malaysia, the Philippines, Vietnam and other developing economies, they may unknowingly create risk for themselves and their own customers, unaware of brewing economic threats.
Smart supply chain risk management considers more than just the possibility of threats like floods and earthquakes or a factory fire. Taking the pulse of risk such as vulnerability to government instability, a whipsawing economy, unexpected regulatory impediments, energy supplies, or the availability of credit requires the monitoring and mapping of such conditions in each supplier’s country of origin. This is not a one and done affair, as the world of business is fast-paced and in constant flux.
How can organizations ferret out key economic information and apply it to their supply chains? The answers lie in microeconomic and macroeconomic data sets which, when properly leveraged, can be considered from the top to the bottom tiers of a supply chain. The result when thoughtfully applied? Resilience. A supply chain strengthened by statistical insights and informed risk management decisions is a dynamic one that is able to adapt and take advantage of a changing world.
From Coast to Coast
The 3,920-ton Left Coast Lifter, originally built by Fluor Construction to help build the new Bay Bridge in San Francisco, will be integral in rebuilding the Tappan Zee Bridge by 2018.
The Lifter and the Statue of Liberty
When he got the news, Scot Burford could see it as clearly as if somebody handed him an 8 by 11 color photograph.
On January 30, the Left Coast Lifter, a massive crane originally built by Fluor Construction to help build the new Bay Bridge in San Francisco, steamed past the Statue of Liberty. Excited observers, who saw the crane entering New York Harbor, dubbed it the “The Hudson River Hoister,” honoring its new role in rebuilding the Tappan Zee Bridge over the Hudson River.
Powered by two stout-hearted tug boats, the Lauren Foss and the Iver Foss, it took more than five weeks for the huge crane to complete the 6,000 mile ocean journey from San Francisco to New York via the Panama Canal.
Scot took a deep breath and reflected on all the work needed to plan every aspect of the crane’s complicated journey.
A risk engineer at Liberty International Underwriters (LIU), Burford worked with a specialized team of marine insurance and risk management professionals which included John Phillips, LIU’s Hull Product Line Leader, Sean Dollahon, an LIU Marine underwriter, and Rick Falcinelli, LIU’s Marine Risk Engineering Manager, to complete a detailed analysis of the crane’s proposed route. Based on a multitude of factors, the LIU team confirmed the safety of the route, produced clear guidelines for the tug captains that included weather restrictions, predetermined ports of refuge in the case of bad weather as well as specifying the ballast conditions and rigging of tow gear on the tugs.
Of equal importance, the deep expertise and extensive experience of the LIU team ensured that the most knowledgeable local surveyors and tugboat captains with the best safety records were selected for the project. After all, the most careful of plans will only be as effective as the people who execute them.
The tremendous size of the Left Coast Lifter presented some unique challenges in preparing for its voyage.
The original intention was to dry tow the crane by loading and securing it on a semi-submersible vessel. However, the lack of an American-flagged vessel that could accommodate the Left Coast Lifter created many logistical complexities and it was decided that the crane would be towed on its own barge.
At first, the LIU team was concerned since the barge was not intended for ocean travel and therefore lacked towing skegs and other structural components typically found on oceangoing barges.
But a detailed review of the plan with the client and contractors gave the LIU team confidence. In this instance, the sheer weight and size of the crane provided sufficient stability, and with the addition of a second tug on the barge’s stern, the LIU team, with its knowledge of barges and tugs, was confident the configuration was seaworthy and the barge would travel in a straight line. The team approved the plan and the crane began its successful voyage.
As impressive as the crane and its voyage were, it was just one piece in hundreds that needed to be underwritten and put in place for the Tappan Zee Bridge project to come off.
The rebuilding of the Tappan Zee Bridge, due to be completed in 2018, is the largest bridge construction project in the modern history of New York. The bridge is 3.1 miles long and will cost more than $3 billion to construct. The twin-span, cable-stayed bridge will be anchored to four mid-river towers.
When veteran contractors American Bridge, Fluor Corp., Granite Construction Northeast and Traylor Bros. formed a joint venture and won the contract to rebuild the Tappan Zee, one of the first things the consortium needed to do was find an insurance partner with the right coverages and technical expertise.
The Marsh broker, Ali Rizvi, Senior Vice President, working with the consortium, was well known to the LIU underwriting and engineering teams. In addition, Burford and the broker had worked on many projects in the past and had a strong relationship. These existing relationships were vital in facilitating efficient communication and data gathering, particularly given the scope and complexity of a project like the Tappan Zee.
And the scope of the project was indeed immense – more than 200 vessels, coming from all over the United States, would be moving construction equipment up the Hudson River.
An integrated team of LIU underwriters and risk engineers (including Burford, Phillips, Dollahon and Falcinelli) got to work evaluating the risk and the proper controls that the project required. Given the global scope of the project, the team’s ability to tap into their tight-knit global network of fellow LIU marine underwriters and engineers with deep industry relationships and expertise was invaluable.
In addition to the large number of vessels, the underwriting process was further complicated by many aspects of the project still being finalized.
“Because the consortium had just won this account, they were still working on contracts and contractors to finalize the deal and were unsure as to where most of the equipment and materials would be coming from,” Burford said.
Despite the massive size of the project and large number of stakeholders, LIU quickly turned around a quote involving three lines of marine coverage, Marine Liability, Project Cargo and Marine Hull & Machinery.
How could LIU produce such a complicated quote in a short period of time? It comes down to integrating risk engineers into the underwriting process, possessing deep industry experience on a global scale and having strong relationships that facilitate communication and trust.
Photo Credit: New York State Thruway Authority
When completed in 2018, the Tappan Zee will be eight lanes, with four emergency pullover lanes. Commuters sailing across it in their sedans and SUVs might appreciate the view of the Hudson, but they might never grasp the complexity of insuring three marine lines, covering the movements of hundreds of marine vessels carrying very expensive cargo.
Not to mention ferrying a 3,920-ton crane from coast to coast without a hitch.
But that’s what insurance does, in its quiet profundity.
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.