Beaumont Vance Enterprise Risk Management Announces New Blog
Beaumont Vance, author of ERM for Dummies and previous owner of RM Reports is beginning a new blog which will focus on quantifying uncertainty, and corporate risk management at the strategic level as well as any other topics that interest him.
Beaumont Vance, author of Enterprise Risk Management for Dummies and editor of Risk Management Reports is launching a new blog. This blog will focus on strategic level risk management for the board and C-suite level of decision making.
Themes will include applying new concepts to strategic risk management, e.g., decision science, complexity theory, econometrics, Big Data, modeling, Monte Carlo, Bayesian statistics and belief networks, systems dynamics and game theory.
Risk management is a field that requires a multidisciplinary approach and beaumont, being a consummate polymath, is the ideal person to fuse together multiple disciplines into a single, elegant suite of solutions.
Beaumont Vance’s blog can be found at www.beaumontvance.com.
When Yelp Reviews Are Better Than Hospital Rating Systems
There is widespread industry agreement that moving towards reimbursing quality versus quantity of care is an important means for controlling medical costs. But how do we define “quality?” And, how do we quantify “quality”?
A recent Health Affairs study illustrates the difficulty of those questions.
The study reviewed four popular hospital rating services (Consumer Reports, Leapfrog, Healthgrades, U.S. News & World Report), and the measures they used were so divergent that their rankings became strikingly different:
- Not one hospital received high marks from all services.
- Only 10 percent of the hospitals rated highly by one service also received top marks from another.
- Twenty-seven hospitals were simultaneously rated among the nation’s best and worst by different services.
We deal with this frequently in our networks. We’ll have one client “absolutely” refuse to work with a provider, while another “absolutely” demands that same provider in their network.
Why such amazing disparity? It’s apparent that both hospital rating services and our clients utilize different factors to measure quality, and weigh those factors differently.
One scoring system may value cost per episode, while another values cost per diem. Another system might reward great valet parking, while another focuses on infection rates. Even slight variances can massively impact ratings. At this point, a Yelp review is likely just as good … or better.
So how do we get to meaningful provider ratings? It’s clearly a pervasive problem. In Rising’s 2014 Workers’ Compensation Benchmarking Study, medical management ranked as the top core competency impacting claim outcomes, yet only 29 percent of respondents rate their medical providers. As demonstrated by the Health Affairs study, it’s really hard to delineate the best from the worst, and trying to make those determinations can cause organizational paralysis.
So, I recommend starting simple. First evaluate what outcomes are most important. Do you value customer experience, clinical, or financial outcomes and to what degree? Do you weigh factors differently by service type (e.g., MRIs weigh convenience highly; surgeries weigh clinical outcomes highly)? If your measurements don’t correlate with your goals, your process won’t produce valuable results.
Even slight variances can massively impact ratings. At this point, a Yelp review is likely just as good … or better.
After determining your most important factors, then your second step is to carve providers from the bottom. This avoids the inertia that can come from trying to rate “top” providers too soon. It’s much easier to eliminate the outlier providers that cause the majority of bad outcomes to instantly improve your program.
Only after these steps would I recommend trying to establish the “best” providers. The “best” often deal with the most difficult cases, with the longest recovery periods or possibly the “worst outcomes.” It’s easy to see how a gifted surgeon might suffer under many quality rating systems. On a positive note, the transition to ICD-10 will allow provider quality comparisons at a deeper level of specificity never possible with ICD-9. In other words, we’ll actually be able to compare apples to apples over time.
With this three-step iterative approach, you can create and refine measurements that bring real, long-term value to your organization…making your system better than Yelp.
Think You Don’t Need Environmental Insurance?
“I don’t work with hazardous materials.”
“My industry isn’t regulated by the EPA.”
“We have an environmental health and safety team, and a response plan in place.”
“We’ve never had an environmental loss.”
“I have coverage through my other general liability and property policies.”
These are the justifications clients most often give insurers for not procuring environmental insurance. For companies outside of sectors with obvious exposure — oil and gas, manufacturing, transportation — the risk of environmental damage may appear marginal and coverage unnecessary.
“Environmental insurance is not like every other insurance,” said Mary Ann Susavidge, Chief Underwriting Officer, Environmental, XL Catlin. “The exposure is unique for every operation and claims don’t happen often, so many businesses view coverage as a discretionary purchase. But the truth is that no one is immune to environmental liability risk.”
Every business needs to be aware of their environmental exposures. To do that, they need a partner with the experience to help them identify exposures and guide them through the remediation claims process after an incident. The environmental team at XL Catlin has been underwriting these risks for 30 years.
“Insureds might not experience this type of claim every day, but our environmental team does,” said Matt O’Malley, President, North America Environmental, XL Catlin. “We’ve seen what can happen if you’re not prepared.”
Susavidge and O’Malley debunked some of the common myths behind decisions to forego environmental coverage:
Myth: My business is not subject to environmental regulations.
Reality: Other regulators and business partners will require some degree of environmental protection.
Regulatory agencies like OSHA are more diligent than ever about indoor air quality and water systems testing after several outbreaks of Legionnaires disease.
“The regulators often set the trends in environmental claims,” Susavidge said. “In the real estate area it started with testing for radon, and now there’s more concern over mold and legionella.”
Multiple hotels have been forced to shut down after testing revealed legionella in their plumbing or cooling systems. In addition to remediation costs, business interruption losses can climb quickly.
For some industries, environmental insurance acts as a critical business enabler because investors require it. Many real estate developers, for example, are moving into urban areas where their clients want to live and work, but vacant lots are scarce. Those still available may be covering up an urban landfill or a brownfield.
“We’re able to provide expertise on those sites and the development risks so the contractor can get comfortable working on it. It’s about allowing our clients to stay relevant in their markets,” O’Malley said. “In this case, the developer is not an insured with a typical environmental exposure. But if there is a contaminant on the worksite, they could inadvertently disperse it. In a high-population urban area, the impact could be large.”
Banks also quite often require the coverage specifically because developers are turning to these locations with higher potential environmental risk.
“Though it’s not a legal requirement, insurance is a facilitator to the deal that developers really can’t operate without,” Susavidge said.
Myth: The small environmental exposure I have would be covered under other polices.
Reality: Environmental losses can result from exposure to off-site events and are excluded by many property and casualty policies.
Environmental risks on adjoining properties can lead to major third party losses. Vapor intrusion under the foundation of one property, for example, can unknowingly underlie the neighboring properties as well. The vapor intrusion can then seep into the surrounding properties, endangering employees and guests.
In other words, your neighbor’s environmental exposure may become your environmental exposure.
O’Malley described a claim in which a petroleum pipeline burst, affecting properties and natural resources 10 miles downstream even though the pipeline was shut off two minutes after the rupture. The energy company that owns the pipeline might have coverage, but what about the other impacted organizations? Many other property policies exclude environmental damage.
Sometimes the exposure is even more unexpected. In 2005, for example, a train carrying tons of chlorine gas crashed into a parked train set sitting in the yard of Avondale Mills — a South Carolina textile plant. The gas permanently damaged plant equipment and forced the operation to shut down.
“It’s not always obvious when you have an environmental exposure,” Susavidge said.
“When there is a big loss or a pattern of losses, the casualty market will typically move to exclude it,” said O’Malley. “And that’s where the environmental team looks for a solution. Environmental coverage has been developed to fill the gaps that other coverages won’t touch.”
Myth: We already have a thorough response plan if there is an incident.
Reality: Properly handling an environmental event requires experience and expertise.
In addition to coverage, risk managers need experience and expertise on their side when navigating environmental claims.
“For many of our clients, their first environmental claim is a very different experience because the claimant is not always a typical third party – it’s a government agency or some other organization that they lack experience with,” Susavidge said. “Our claims team is made up of attorneys that have specific domain experience litigating environmental claims issues.”
Beyond its legal staff, XL Catlin’s claims consulting team and risk engineers come with specialized expertise in environmental issues. 85 to 90 percent of the team members are former environmental engineers and scientists, civil engineers, chemists, and geologists.
“Handling environmental claims requires specialized expertise with contaminants and different types of pollution events,” O’Malley said. “That’s why our 30 years of experience makes a difference.”
Thirty years in the business also means 30 years of loss data.
“That informs us as a carrier how to provide the right types of services for the right clients,” Susavidge said. “It gives us insight into what our insureds are likely to experience and help us determine what support they need.”
Insureds also benefit from the relationships that XL Catlin has built in the industry over those 30 years. When the XL Catlin team is engaged following a covered pollution event, the XL Catlin claims team can deploy seasoned, experienced third party contractors that partner with the insured to address the spill and the potential reputational risk. And they receive guidance on communicating with regulatory bodies and following proper reporting procedures.
“The value of the policy goes beyond the words that are written,” O’Malley said. “It’s the service we provide to help clients get back on their feet, so they can focus on their business rather than the event itself.”
For more information on XL Catlin’s environmental coverage and services, visit http://xlcatlin.com/insurance/insurance-coverage/casualty-insurance.
The information contained herein is intended for informational purposes only. Insurance coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy, and the facts of each unique situation. No representation is made that any specific insurance coverage would apply in the circumstances outlined herein. Please refer to the individual policy forms for specific coverage details. XL Catlin, the XL Catlin logo and Make Your World Go are trademarks of XL Group Ltd companies. XL Catlin is the global brand used by XL Group Ltd’s (re)insurance subsidiaries. In the US, the insurance companies of XL Group Ltd are: Catlin Indemnity Company, Catlin Insurance Company, Inc., Catlin Specialty Insurance Company, Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions. Information accurate as of September 2016.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with XL Catlin. The editorial staff of Risk & Insurance had no role in its preparation.