A Foreign Education
As more and more American colleges and universities broaden their international footprints, their risk profiles also change. Many are expanding to the developing world, where risks are greater. To keep up, a small but growing number of institutions are hiring full-time international risk managers, according to industry leaders.
Of the 4,500-odd American colleges and universities, about 600 employ dedicated risk managers, and 29 employ full-time international risk managers.
“It’s a new trend, and it’s taking root,” said Jean Demchak, the Global Education and Public Entity practice leader for Marsh. Most were hired in the past three years, and their ranks are growing at about 10 per year.
That trend is most visible in large universities with very mature international programs. However, small schools, including many community and junior colleges, also have international programs that require risk management.
Gone are the days when mere undergraduate study-abroad programs defined an institution’s international presence, said Joan Rupar, division president, Foreign Casualty, AIG.
The traditional health and safety risks to undergraduates remain, but are now complicated by increasingly commercialized enterprises involving faculty and local nationals that raise issues of local and international law, employment and environmental regulations. Trips to remote, undeveloped, and politically unstable locations introduce yet a new set of medical access, kidnap and crime risks.
“When institutions contract with commercial entities for clinical trials or to use their engineering or agriculture expertise in the market, their scope of liability opens considerably,” said Rupar.
“Institutions plan to bring the litigation back to the U.S. if anything happens, but that doesn’t always happen.”
Yet institutions take on the risks with zeal, since foreign programs prepare students for a globalized workplace and political environment, and commercial opportunities compensate for diminishing public education funds as tuition soars, said Paul Pousson, associate director of risk management at The University of Texas System. “Every university president wants to expand the institution’s foreign footprint.”
Compliance With Local Laws
Mike Liebowitz, senior director of enterprise risk management and insurance, New York University — who is one of the 29 full-time international risk managers — said institutions must protect themselves with broad coverage that complies with local regulations.
Domestic insurance policies may be useless for overseas claims because many countries require a licensed insurer, Liebowitz said. U.S. coverage might not be valid in another country because the local coverage is often taxed.
“It’s a revenue source for the country,” Liebowitz said.
Although most exposures for foreign campuses are not much different from those in the United States, employment exposures are a notable exception. When institutions hire from the local population, as foreign campuses and research facilities inevitably will do, risk managers should examine the full battery of employment issues, said Pousson. Those questions include:
• What’s the position to be filled?
• How are employees paid?
• What are the tax issues?
• What are the fringe benefits?
• What are the banking and cash management issues?
• Will the institution open a local bank account?
• Who will have access to the account?
• Who will reconcile it?
Institutions must also comply with local building and construction codes when they buy or renovate property, said Harsh Dutia, vice president, Multinational practice, Marsh USA. “They’re concerned about being good corporate citizens in these countries.”
When setting up the foreign program, Pousson said, most institutions need to tap legal and accounting consultants external to the school. In some cases, those may be professionals in the host country.
Mitigating Health and Safety Risks
Although commercial exposures account for a large and growing part of universities’ international risk, the traditional one — students studying abroad — remains Temple University’s single greatest international risk, said Lisa Zimmaro, assistant vice president for risk management and treasury, Temple University.
“You have a population of 18- to 24-year-olds who think they’re immortal,” she said. “They’re not old enough to drink legally at home, and suddenly they can order a drink. They take risks.”
Some trips are risky simply by virtue of their purpose and location. For example, said Bill Hoye, executive vice president and chief operating officer, IES Abroad, which manages 100 study-abroad programs in 36 global locations, a service-learning trip to an AIDS clinic or a construction site in Africa may carry a range of developing world risks: illness and injury, remoteness and access to medical care.
“You have a population of 18- to 24-year-olds who think they’re immortal.”
— Lisa Zimmaro, assistant vice president, Temple University
“Before you go, have a plan in place,” Hoye said. That may mean bringing a sophisticated medical kit as well as trained and certified first responders.
“You identify the foreseeable risks in that environment and then tailor a plan that spells out how you respond to each risk.”
Safe educational travel is itself a topic of academic research as well as a cottage industry. UCLA’s Center for Global Education provides an exhaustive clearinghouse of best practices and information, including checklists, to help institutions plan for conditions around the world, such as the lack of smoke detectors in France, penalties in Singapore for chewing gum, which way to look before crossing the street in Auckland and evacuations from war zones.
The University of Pennsylvania emphasizes pre-departure preparation and training of its students, establishing contingency plans for “every imaginable” situation, including kidnap, ransom and war, said Jaime Molyneux, director of international risk management, University of Pennsylvania. Where some institutions use commercial travel tracking systems to broadcast alerts and establish a head count in emergencies, Penn requires students to use its homegrown travel tracking system.
Many risk managers and insurance brokers advocate for site visits and assessments when possible. Liebowitz of NYU — a “risk-conservative” school — has visited many of its campuses on every continent except Antarctica. Zimmaro of Temple University credited her site visits with being able to evacuate students from Japan without undue incident after the 2011 earthquake and tsunami. “It was the first time I chartered a plane,” she said.
If they can’t make site assessments, said Rupar of AIG, risk managers at least should learn “an awful lot” about building codes, safety and security in locations of repeat travel, and facilities used as classrooms. That information will transfer to the students and faculty in pre-trip training. Some institutions that can’t make site visits choose to contract with vetted and established assistance providers, such as International SOS, a medical and travel security services company, or the travel tracking service company Terra Dotta Software, which pushes out alerts, about say, a dengue fever outbreak in Ecuador, to affected travelers, per their itineraries.
The most effective mitigation, Pousson said, involves internal cross-collaboration between risk managers, international studies, faculty and athletics to hash out the full scale of the foreign undertaking. Some institutions tackle this through international oversight committees, said Rupar. “They gather all the stakeholders at the table to say, ‘This is the program we want, and these are the risks. How do we protect the university’s assets?’ ”
One of the potentially best training programs seldom takes place in the United States, said Gary Rhodes, director, UCLA Center for Global Education: foreign language instruction in the early grades, when the child’s neural pathways for language are still elastic. “It’s harder to learn a language at the college level,” he said.
Many colleges and universities belong to self-insured consortia, and more want to belong, said Jan Trionfi, risk management, environmental health & safety, Central Michigan University (CMU), which belongs to the Michigan Universities Self-Insurance Corp. (MUSIC), a consortium of 11 Michigan public universities.
CMU buys its “very good, very broad” foreign liability insurance through the consortium at about a 15 percent savings, thanks to the volume purchase. Coverage includes general liability, property, auto liability, workers’ compensation, and the once exotic but now routine kidnap, ransom, emergency evacuation and repatriation coverage. Some but not all MUSIC members buy the policy, which isn’t included in the core general liability coverage. Because each institution has its own risk tolerance, they don’t share risk, instead buying stand-alone policies, said MUSIC’s broker, Jerry McKay, senior vice president, Marsh Inc.
In addition to cost savings, McKay said, consortia members benefit from sharing best practices. “Typically, the larger members develop best practices that they share freely with the other members.”
“Consortia are a forum for members to discuss how they found missing travelers, how they keep track of them, how they’ve helped them, what’s their disaster plan,” said Rupar.
“That takes a lot of collective thinking, and the result is a very good thing.”
Making the Grade
Taking the time to match a tough job with a worker who can actually do it reduces the potential for costly workplace injuries, employers are now finding.
That concept is leading more employers to study their essential job functions and test the ability of job candidates, particularly when a job requires a new hire to perform functions known to cause injuries.
Increased nationwide hiring, the rising cost of treating workplace injuries and a less physically fit job applicant pool are driving more employers to employ the practice known as post-offer employment testing.
Post-offer employment testing, or POET, involves simulating the lifting, pushing, pulling and other physical activities that make up a job’s essential functions. Employers are increasingly making employment offers conditional upon a job applicant’s physical ability to perform those activities.
And in another recent trend, employers are expanding the strategy to help determine when to return an established employee to their duties following a workplace injury or a non-occupational disability leave.
“Pre-work screens are not a good strategy if your injuries are coming three years into employment.”
–Drew Bossen, founder, Atlas Ergonomics
At Cooper Standard, the Novi, Mich.-based automobile parts manufacturer, for example, workers desiring a strenuous job first participate in “simulated work.” That helps determine whether they are physically capable of performing the real job, said Patricia Hostine, the company’s global manager of workers’ compensation.
A job requiring continual force to press rubber hose into a mold that forms radiator hoses is desirable because it is one of the better paying tasks the auto parts manufacturer offers, Hostine added.
But it’s also one of the company’s most physically demanding roles.
“It’s very hard work,” Hostine said. “That is where a lot of our injuries are found.”
After performing the simulated work, more applicants decide against taking the job than the company disqualifies. That’s because the testing showed them they couldn’t do the job anyway.
Cooper Standard also requires a functional evaluation, conducted by physical therapists, for any worker who has been away from work either because of a workplace injury or a non-occupational disability.
That requires employees who normally form radiator hoses to show that they are once again physically capable of performing the work after returning from an absence.
Employers that have benefited from conducting POET evaluations for newly hired employees are increasingly adopting a similar worker evaluation as part of their return-to-work programs, several experts said.
“Historically, these [physical evaluations] have been used at the point of offer, at the point of employment,” said Drew Bossen, a physical therapist and founder of Atlas Ergonomics. “But in the last 12 months, we have clients formulating methodologies to use them for return to work as well.”
Data from an initial POET exam can also provide a measured baseline of an employee’s abilities that can be reviewed post injury to help determine when the worker has regained their ability to return to their original job, or whether they should take up other duties.
Using data that way can reduce return-to-work durations by providing support for a doctor’s determination to release their patient.
Most employers using a POET system, however, still use it only to test newly hired workers.
Evaluating whether potential new hires have the physical ability to perform certain tasks can substantially reduce a company’s injury rate because newer workers typically account for a greater number of injuries than their more-experienced counterparts, POET advocates said.
Data compiled by the National Council on Compensation Insurance Inc. showed that workers on the job less than a year in 2007 accounted for nearly 34 percent of injuries although they made up only 23 percent of the labor force.
“Pre-work screens are not a good strategy if your injuries are coming three years into employment,” Bossen said.
Now, as the U.S. Labor Department reports increased hiring across the country, vendors that provide physical ability testing programs said they are seeing increased demand, which had dropped off during the recession.
“We have seen a big uptick in companies interested in doing this across all industries,” including transportation, mining and health care, said Connie Vaughn-Miller, vice president of business development for BTE Technologies.
The testing may be more beneficial for the most strenuous types of work.
Hostine at Cooper Standard said, for example, that she does not see a cost/benefit advantage for testing workers engaged in light production jobs.
Most employers adopting a POET strategy do so for certain positions and many start with a pilot program, experts said. It’s best to decide which job categories to include in a pilot program by reviewing the company’s claims history to pinpoint where injury frequency and severity are problems. Or, they recommend starting with the company’s most physically demanding jobs, then add others if the pilot results warrant doing so.
“We can’t be a better place to work if we’re hiring people that are not able to perform the job. That’s bad for the company and the associate.”
–Libby Christman, vice president of risk management, Ahold USA.
Making Work Safer
“One of our company promises is to be a better place to work,” said Libby Christman, vice president of risk management at Ahold USA.
“We can’t be a better place to work if we’re hiring people that are not able to perform the job. That’s bad for the company and the associate.”
Ahold is a retailer with about 120,000 employees operating stores under the names of Stop & Shop, Giant Food Stores, Martin’s Food Markets, and Peapod, an online grocery ordering unit.
Late last year, Ahold launched a pilot program for Peapod delivery drivers and for certain strenuous jobs in two warehouses, Christman said. The warehouse jobs require pushing, pulling, bending and lifting.
Since September, Christman has found that about 25 percent of job applicants could not pass its physical demands test. Screening for an employee capable of doing the job, though, not only reduces injuries, but improves productivity.
“We know that obtaining an accurate assessment of an applicant’s physical abilities can help us place him or her in a suitable job, potentially eliminate injuries and ensure efficiency and performance on the job,” Christman said.
Stepped-up hiring is not the only factor driving employer demand for POET services, observers said.
Employers — continually pushing for more sophisticated safety measures in the face of an aging, more obese, and less physically fit U.S. workforce — are also driving the demand, BTE Technologies’ Vaughn-Miller said.
The Discrimination Question
Employers cannot discriminate when hiring, but they can legally ask a worker to demonstrate that they can meet the physical demands of a job’s essential functions, experts said.
That requires careful analysis, however, to clearly understand a job’s essential functions, so the designed test measures just those functions and does not go beyond evaluating a worker’s ability to perform those specific tasks.
Employers have run afoul of the Equal Employment Opportunity Commission when implementing POET programs that evaluated for abilities beyond those required by the job.
If employees must lift 75 pounds only once a year, and can use a mechanical lift assist to help them when they do so, then testing to see whether a worker can lift 75 pounds is not a fair test, advised Colleen M. Britz, managing director and ergonomics practice leader for Marsh Risk Consulting.
Employers may also face discrimination complaints if they do not require a POET evaluation of everyone seeking a specific job, experts warned.
The tests themselves, however, vary substantially, depending on the vendor or employer providing them.
Some resemble gym equipment with electronic systems for measuring a worker’s strength and agility. Those results can then be compared to computerized measurements of a task. Other tests may be as simple as requiring a worker to lift bags of sand.
“I do consider it a best practice to have a well-designed post-offer employment test that truly is measuring an employee’s capacity to meet physical demands,” Britz said. “It’s a matter, from my perspective, of whether some of the methodologies are truly testing that.”
The wide variation in testing methodology has hampered the collection of data on POET’s impact on overall employee injury rates across industries or multiple employers, experts said.
But individual employers have experienced success, Britz said.
“I don’t know of any company that has stopped doing POET after starting — because they are seeing a positive return on investment,” she added.
A physical abilities test helped Prince William County in Virginia mitigate a double loss driven by candidates seeking to become firefighters.
The county was losing tens of thousands of dollars on hiring and training costs each time a job candidate washed out of a 26-week training course simply because they could not perform the physical challenges firefighters face in the line of duty, said Tim Keen, assistant chief for the county’s Department of Fire and Rescue.
Because firefighting is a tough job, a lack of physical capability also contributed to recruit training injuries.
“Not only is it a hard job, but when you add all the gear they wear, their air packs, as well as the functional movements that it takes to accomplish certain tasks, it puts strains on the body,” Keen said.
Those strains became costly workers’ compensation claims when recruits could not return to an existing job as would occur after an established firefighter suffered an injury, added Lori Gray, the county’s risk management division chief. That forced the county to continue paying workers’ compensation benefits to recruits who did not have a job to return to.
So in 2003, the risk management and fire department helped the county establish its own facility where applicants wanting to become firefighters must first participate in a standardized Candidate Physical Ability Test.
The International Association of Fire Fighters and the International Association of Fire Chiefs developed the CPAT test the county licenses.
The test used by fire departments across the country requires candidates to climb stairs while wearing weight vests, drag hoses and simulated bodies, simulate forcing their way into a building, and conduct other physical feats within a certain time period.
“There are a variety of firefighting tasks they must go through in this course,” Keen said. The course tests their aerobic capabilities, their flexibility, core strength, and upper and lower body fitness.
The test’s standardization ensures it is true to the firefighter’s actual work role and that is legal and fair to all candidates, he added.
“Regardless of age or gender the course is the same for everybody,” he said.
“The test is appropriate so you are not losing people due to injuries, especially early in their careers, Keen said. “It’s the right thing to do, making sure they are physically capable of doing the job.”
The screenings have resulted in fewer recruits lost due to a lack of physical ability.
“We have also seen a huge reduction in the number of injuries that were occurring because recruits are coming in more physically fit to do the job,” Keen said.
POET advocates said the screening results have other applications as well.
In some cases, post-offer physical test results provide employers with a defense in permanent disability cases, Britz said.
In states allowing employers to apportion responsibility for permanent disability claims, for example, the baseline results from the initial post-offer exam can limit an employer’s liability by showing that a worker lost only a certain portion of their functional ability during their employment tenure.
Britz added that she expects to see more large, sophisticated employers counter rising claims severity driven by factors such as aging and obesity by integrating their ergonomics, wellness intervention and physical ability testing programs.
For example, an employee returning from a leave might undergo a fitness for duty exam to evaluate their ability to perform the job without injuring themselves.
Simultaneously, the employee could be referred to the employer’s wellness program to address health-related issues such as high body mass index or to learn exercises that would strengthen certain body parts, such as their shoulders, if frequently used in their daily work routines.
“That is the evolution of post-offer employment testing into fitness-for-duty programs,” she said.
“Not so they lose the job, but to recognize that this person needs to work on shoulder strength. So we create an opportunity to increase shoulder strength. I think that is going to be the wave of the future.”
Helping Investment Advisers Hurdle New “Customer First” Government Regulation
This spring, the Department of Labor (DOL) rolled out a set of rule changes likely to raise issues for advisers managing their customers’ retirement investment accounts. In an already challenging compliance environment, the new regulation will push financial advisory firms to adapt their business models to adhere to a higher standard while staying profitable.
The new proposal mandates a fiduciary standard that requires advisers to place a client’s best interests before their own when recommending investments, rather than adhering to a more lenient suitability standard. In addition to increasing compliance costs, this standard also ups the liability risk for advisers.
The rule changes will also disrupt the traditional broker-dealer model by pressuring firms to do away with commissions and move instead to fee-based compensation. Fee-based models remove the incentive to recommend high-cost investments to clients when less expensive, comparable options exist.
“Broker-dealers currently follow a sales distribution model, and the concern driving this shift in compensation structure is that IRAs have been suffering because of the commission factor,” said Richard Haran, who oversees the Financial Institutions book of business for Liberty International Underwriters. “Overall, the fiduciary standard is more difficult to comply with than a suitability standard, and the fee-based model could make it harder to do so in an economical way. Broker dealers may have to change the way they do business.”
As a consequence of the new DOL regulation, the Securities and Exchange Commission (SEC) will be forced to respond with its own fiduciary standard which will tighten up their regulations to even the playing field and create consistency for customers seeking investment management.
Because the SEC relies on securities law while the DOL takes guidance from ERISA, there will undoubtedly be nuances between the two new standards, creating compliance confusion for both Registered Investment Advisors (RIAs)and broker-dealers.
To ensure they adhere to the new structure, “we could see more broker-dealers become RIAs or get dually registered, since advisers already follow a fee-based compensation model,” Haran said. “The result is that there will be likely more RIAs after the regulation passes.”
But RIAs have their own set of challenges awaiting them. The SEC announced it would beef up oversight of investment advisors with more frequent examinations, which historically were few and far between.
“Examiners will focus on individual investments deemed very risky,” said Melanie Rivera, Financial Institutions Underwriter for LIU. “They’ll also be looking more closely at cyber security, as RIAs control private customer information like Social Security numbers and account numbers.”
Demand for Cover
In the face of regulatory uncertainty and increased scrutiny from the SEC, investment managers will need to be sure they have coverage to safeguard them from any oversight or failure to comply exactly with the new standards.
In collaboration with claims experts, underwriters, legal counsel and outside brokers, Liberty International Underwriters revamped older forms for investment adviser professional liability and condensed them into a single form that addresses emerging compliance needs.
The new form for investment management solutions pulls together seven coverages:
- Investment Adviser E&O, including a cyber sub-limit
- Investment Advisers D&O
- Mutual Funds D&O and E&O
- Hedge Fund D&O and E&O
- Employment Practices Liability
- Fiduciary Liability
- Service Providers D&O
“A comprehensive solution, like the revamped form provides, will help advisers navigate the new regulatory environment,” Rivera said. “It’s a one-stop shop, allowing clients to bind coverage more efficiently and provide peace of mind.”
Ahead of the Curve
The new form demonstrates how LIU’s best-in class expertise lends itself to the collaborative and innovative approach necessary to anticipate trends and address emerging needs in the marketplace.
“Seeing the pending regulation, we worked internally to assess what the effect would be on our adviser clients, and how we could respond to make the transition as easy as possible,” Haran said. “We believe the new form will not only meet the increased demand for coverage, but actually creates a better product with the introduction of cyber sublimits, which are built into the investment adviser E&O policy.”
The combined form also considers another potential need: cost of correction coverage. Complying with a fiduciary standard could increase the need for this type of cover, which is not currently offered on a consistent basis. LIU’s form will offer cost of correction coverage on a sublimited basis by endorsement.
“We’ve tried to cross product lines and not stay siloed,” Haran said. “Our clients are facing new risks, in a new regulatory environment, and they need a tailored approach. LIU’s history of collaboration and innovation demonstrates that we can provide unique solutions to meet their needs.”
For more information about Liberty International Underwriters’ products for investment managers, visit www.LIU-USA.com.
Liberty International Underwriters is the marketing name for the broker-distributed specialty lines business operations of Liberty Mutual Insurance. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds. This literature is a summary only and does not include all terms, conditions, or exclusions of the coverage described. Please refer to the actual policy issued for complete details of coverage and exclusions.
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.