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Risk Insider: Grace Crickette

ERM and the Art of War: Tactics

By: | November 17, 2014 • 3 min read
Grace Crickette, senior vice president of risk services with AAA Northern California, Nevada and Utah, is writing a series on how to gracefully transform your risk management program through enterprise risk management and change management techniques. She can be reached at Grace.Crickette@goaaa.com.
Topics: ERM | Risk Insider

Part IV of a series exploring phrases and tactics from Sun Tzu’s* The Art of War to develop strategies for implementing ERM programs. This installment delves into Chapter IV: Tactics.

MAKE ERM, NOT WAR

rainbow peace sign copy

Chapter IV: Tactics

  • What is our current reputation?
  • Do we have weaknesses in our current program?
  • Do we have good news we can publish?

Art of War Key Principal: Inherent Advantages and Disadvantages: Understand, and guard against, the inherent disadvantage in every advantageous situation. (If it sounds too good to be true it probably is).  Likewise, be alert to capitalizing on advantages that occur in distressed situations (Never waste a crisis).

If it sounds too good to be true it probably is, even if it is your own truth. We can be so impassioned about our ERM program, that we don’t recognize that it might have flaws and that our approach might be harming our reputation. What is your team’s reputation? Are you seen as problem solvers who efficiently deliver value?  Or is your program overcomplicated and time consuming? I recommend that not only in the planning process, but that you regularly conduct a SWOT Analysis. Get the team together and some post-it-notes …

We will assess our organization, team and program — SWOT:

  • Strengths: characteristics of the business or project that give it an advantage over others.
  • Weaknesses: characteristics that place the business or project at a disadvantage relative to others
  • Opportunities: elements that the project could exploit to its advantage
  • Threats: elements in the environment that could cause trouble for the business or project
Grace in the Workplace VI SWOT chart 2nd FINAL

Out of this exercise you might come up with the following solutions:  Expand our ERM panel to include a representative that is leading Strategic Planning, or produce a one page executive report that highlights how ERM would have prevented or mitigated unwanted events, or integrate ERM into one or more of the more high-profile initiatives.

But, no matter what good work you do, if others don’t know about the value you are delivering, you will never win the war!

Our Good News Plan:

While you’re building your program, begin to publish even the smallest of “victories”.  It may be a positive result that your team has had outside of the ERM program – “we reduced the injuries in the foodservice group by 10 percent in the last year by conducting weekly meetings with line workers who led discussions on safety…”  Get one of the workers to give a testimonial.

The idea is to publish often, tell real stories about how lives are impacted, and build your teams’ reputation as problem solvers. Then as you progress with delivering your “good news” messages about your ERM Program you will already have people’s attention and respect.

Publish often and in many forms: website, small posters, handouts, internal publications, and external publications.

Key Takeaway: Develop tactics that consider the advantages and disadvantages of your organization, your team, and your ERM program.  Claim even the smallest victories and communicate them out often and through as many channels as possible.  Focus your team on positively impacting people and solving problems.

Remember — it’s not Risk Management, it’s Change Management!

* Sun Tzu was a Chinese military general, strategist and philosopher who lived in the Spring and Autumn Period of ancient China.
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Grace in the Workplace: How to gracefully bring together traditional risk management and change management techniques, and enterprise risk management conceptsRead more of Grace’s Sun Tzu series. 
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Risk Insider: Chris Mandel

Risk Management Effectiveness: What Matters Most

By: | November 5, 2014 • 3 min read
Chris Mandel is SVP, strategic solutions for Sedgwick. He is a long-term risk management leader and a former president of RIMS. He can be reached at chris.mandel@sedgwickcms.com.
Topics: ERM | Risk Insider

People are always trying to glean the keys to success in risk management. Well, here’s what I know: No two successful practitioners are doing exactly the same thing. Nor are they following a template based strategy. What you can take away from that is that a) there’s no one right way to practice risk management, and b) the best risk strategies are those that are aligned with, if not custom designed to fit, the needs and priorities of the organizations for which they are intended.

What matters most in achieving risk management success? For starters, a thoughtfully cultivated risk culture is prerequisite to long term success. Keep in mind that your employees’ risk taking and risk-managing behaviors — without a specific design and strategy for your intended risk culture — will not likely be the behaviors or culture you most need and ideally desire. Therefore, communicating your expected culture is a pursuit of great value to your long term risk management effectiveness.

Here are 10 other items that, in my opinion, matter most in effectively managing risk. If you operate with these elements in place, you will be more likely to have an effective strategy that other leaders will both contribute to and enable through resources.

Downside Protection Job 1: The first priority is to make sure reasonably preventable loss is addressed through both mitigation and financing tactics. Management and governance rightly assume this is under foot.

Influence and Gumption: Every senior risk leader must have the respect to be heard and the gumption to push back on risk owners and stakeholders with whom they may disagree.

Consistency: With risk process and sub-processes being the way in which the work gets executed, it is essential that their use be consistently applied by all users.

Process Rigor: Processes that produce results and have impact require a rigorous approach to how they are designed, measured for effectiveness and continuously improved.

Data Interpretability: Reporting actionable information is a must for showing results and impact.

Communication Clarity: Beginning with a clear definition of risk itself, an entire sub-strategy for communicating your messaging will ensure you reach the right recipients at the right time with the right message.

Reliable Measurability: Not every risk can or should be quantitatively measured but when you do, make sure it is as believable as possible.

Value Creation: Recognizing and leveraging risk for gain is the necessary evolution of the discipline’s practitioners if they ever hope to move beyond the tactical.

Managing to Appetite and Capacity: Risk cannot be effectively managed without a clear view into how much risk you are taking, want to take and have the capacity to take or assume.

Aligning Risk and Performance: The penultimate outcome for risk professionals is they manage risk relative to performance. Alignment, if not integration, between these disciplines is essential to achieving short and long term goals.

Sure, there are other tactical elements of a good risk strategy and framework, but I believe they will naturally flow out of these elements when put into practice with the proper senior level mandate and regular reinforcement of strategy.

Read all of Chris Mandel’s Risk Insider contributions.

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Sponsored: Liberty Mutual Insurance

Construction’s New World

The underwriting of construction risk is undergoing a drastic change, one that may take many years to resolve.
By: | November 3, 2014 • 5 min read

Get off a plane at Logan Airport and cross the harbor toward Boston and you will see construction cranes, a lot of them.

Grab an Amtrak train from Philadelphia into New York and pulling into Penn Station, you will see more construction cranes, many more of them. The same scene repeats in Denver, Los Angeles, San Francisco and Chicago.

All that steel and cable in the skyline signifies a construction industry that is growing again, after having the rug pulled out from under it in the Great Recession of 2008-2010.

The cranes these days look the same as cranes looked in 2008, but the risk management and insurance environment in construction is anything but the same now.

A variety of factors are now in play that have drastically changed construction risk underwriting, according to Doug Cauti, a senior vice president and chief underwriting officer with Boston-based Liberty Mutual’s construction practice.

Doug Cauti characterizes the current construction market.

Talent and Margins

For one thing, according to Cauti, the available talent pool in construction is nowhere near what it was pre-recession.

“When the economy went into its downturn, a lot of talent left the business and hasn’t returned,” Cauti said.

Cauti said recent conversations with large contractors in Ohio and Pennsylvania confirmed once again that contractors are facing a workforce that is either aging or very inexperienced. That leads to safety management and project quality concerns at just the moment in time that construction is rebounding.

Doug identifies one of the top risk management issues facing construction firms today.

Workers compensation risks in construction, already a problematic area, are seeing an impact from that dynamic.

Contractors are also facing much more competition. In the past, contractors might have bid on 10 jobs to get one, now they have to bid on 50 or 60 jobs to get one. That’s putting pressure on margins.

“There are a lot of contractors out there competing for business,” Cauti said.

“Margins are going up but not at the same rate as the industry’s recovery,” he added.

Financing and Risk Transfer

Another factor impacting the way construction risk is being underwritten is the size of projects and the way they are being financed. Construction’s recovery from the recession might be slow and steady, but the size of projects requiring risk management and insurance has increased substantially.

In 2010, there were 85 projects under contract nationally that were worth $1 billion or more, according to Cauti. One year later, the percentage of projects of that value or higher had grown by 30 percent, and the trend continues.

A lot of those projects are design-build, a relatively new approach to construction that Liberty Mutual has grown comfortable underwriting over the years. But design-build is still an additional complication, blurring the traditional lines of responsibility.

SponsoredContent_LM“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery.”
– Doug Cauti, Chief Underwriting Officer, Liberty Mutual National Insurance Specialty Construction

Given the funding demands of these much larger and more valuable projects — many of them badly needed public sector infrastructure improvements — public-private partnerships, otherwise known as P3s, are now coming into vogue as a financing option.

But deciding how risk should be allocated, underwritten and transferred in this new arrangement between contractors, the state, and private partners is a relatively new and untested science.

As a thought leader in the underwriting of the design-build approach – and the more traditional design-bid-build – Cauti said construction experts within Liberty Mutual are growing their knowledge to stay in step.

“We did it when the growth in contractor-controlled insurance programs happened, we did it with the evolution in design-build and we’re laying the groundwork to be a thought leader in public-private partnerships and integrated project delivery,” he said.

That means attending relevant industry conferences like the annual IRMI Construction Risk Conference where Liberty Mutual has maintained a significant presence, and engaging in dialogues with contractors and government officials, and maintaining clear and active lines of communications with brokers.

Doug discusses emerging approaches to construction.

Legal and Regulatory

Another change that is creating challenges for construction risk underwriting, according to Cauti, stems from what’s happening in United States courtrooms.

Across the country, how a court interprets coverage can vary widely, especially in the area of construction defect.

“In the past, many jurisdictions viewed construction defect simply as shoddy workmanship and they had to go back and redo it,” Cauti said.

But now, on a state by state basis, courts are ruling that a construction defect is an accident under certain circumstances that may be covered by a contractor’s general liability policy.

In 2014 alone, according to Cauti, Supreme Courts in West Virginia, Connecticut and North Dakota ruled that construction defects can sometimes be considered accidents.

Cauti said doing business with a carrier that pursues contract clarity whenever possible – and that possesses an experienced claims team that can navigate the wide variety of state interpretations – is absolutely essential to the buyer.

Having claim teams not only dedicated to construction but also to construction defect, adds a lot of value to a carrier’s offering.

Doug outlines another top risk management issue facing construction firms in today’s booming market.

Now, as never before, contractors are relying on experienced construction insurance teams to help them address these complexities.

Insurers need to have the engineering expertise to analyze a project, to make sure the right contracting team is in place and to insure that risk exposures are being properly assessed. Another key in a construction insurance team, according to Cauti, is the claims department.

A Strategic Approach

The legal and financing changes that are taking place in the construction market, from a risk transfer standpoint, aren’t going to get ironed out overnight.

Cauti said it could be 10 years until the construction and insurance industries fully understand the complications of public-private partnerships and integrated project delivery, these approaches gain traction, and the state-by-state legal decisions that are causing so much uncertainty can be digested.

In the meantime, an engaged, collaborative approach between carriers, brokers, contractors, and their financing partners will be necessary.

Doug discusses how his area can provide value to project owners and contractors.

For more information on how Liberty Mutual Insurance can help assess your construction risk exposure, contact your broker or Doug Cauti at douglas.cauti@libertymutual.com.

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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.


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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