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By DAN REYNOLDS, senior editor of Risk & Insurance®

Editor's note: In June, Risk & Insurance® and the accounting firm Ernst & Young hosted a panel of veteran risk managers who shared their thoughts on communication and its role in managing the claims process and business continuity planning.

The discussion was led by Allen Melton, an Ernst & Young partner and the director of its Insurance Claims Services Group. Melton directed the conversation armed with results from the first annual joint survey of risk managers by Ernst & Young and Risk & Insurance®. More than 300 risk managers responded to the survey, and the results were published in the May issue of Risk & Insurance®.

It's often said that good communication is vitally important in risk management and that's unarguable. Just how important it is only becomes apparent when one looks at the ways communication is integral not only to arranging insurance coverage but in managing the carrier relationship.

Add to that the importance of communication's role in managing the expectations of your fellow co-workers, including those who manage you--in other words your bosses.

Gier, Diaz and Fuchs represent big-time risk management, where supply chain networks are vast, the property coverage issues complex, and the dollars at stake in the tens of millions.

Their challenges span the enterprise, and often the globe. These risk managers often carry with them head-spinning risk management burdens, and it was Xerox's Diaz who may have uncovered the gem in our June discussion, when she pointed to the culture of denial that sometimes exists when insurance buyers and their carriers and brokers arrange insurance coverage.

That denial, she said, is represented by people who tend to avoid the fact, like it or not, that there will be claims.

"Clearly, we are buying insurance for covering a claim but nobody wants to talk about the fact that you could have a claim and what the circumstances of that claim could be," Diaz said. That ties into what Diaz feels is one of the most unsettling pieces of work a risk manager can do, at least in the management of property coverage.

"One of my pet peeves in a property policy is valuation language and I call it a pet peeve because most companies regardless of size really need to modify the valuation language in a way that works for them," Diaz said.

That's the way you're going to get paid, Diaz also said, and every risk manager should give valuation language plenty of attention and not leave the talking up to the intermediaries.

Successful communication in the context of risk management also means being very sensitive to who is being communicated to. That means controlling who is in the room when it comes time to talk about a claim.

Diaz learned the hard way. She told us a story from her early days in the profession when she made the mistake of showing up all alone at a claims resolution meeting and promptly felt outgunned by the other side, which included an attorney and a forensic accountant.

As part of her claims resolution checklist, Diaz now finds out who is going to be in the room before the meeting and assembles her team of experts for any scrimmage.

WORK TO BE DONE

For all the importance attached to claims resolution, you'd think risk managers might at least pay more attention to it.

One of the most unexpected pieces of information revealed by the risk management survey was that about 30 percent of risk managers said they met only once or not at all with the adjustor during the claims resolution process.

Ernst & Young's Melton said it is clear that there is work to be done there.

"I think that there is a lack of communication that is happening on the claims side," Melton said.

"When you look at relationships that are being built on the underwriting and placement of coverage and then when you contrast it on the claims side it is clear to see why there are so many companies who responded that they had a dissatisfactory experience throughout the claims process," Melton said.

Attorneys are a profession that risk managers rely on. But they try to draw limits on having attorneys in the room during the claims adjusting process for fear that their presence sometimes hampers open communication.

"In answer to your question, I have never dealt with a lawyer on a property claim. I've been in plenty of liability claims with an attorney but never on a property claim," Honeywell's Fuchs said.

Fuchs, when questioned directly, said that yes, she feels her carrier (or carriers) trust her, but the way she develops and builds that trust is by encouraging the Honeywell employees that are involved in a claim to be as open as possible with the insurer.

"There has to be very open, frank communication with both the adjustor and the insurance company," Fuchs said.

"We have had some claims in the past where our businesses were reluctant to speak to the insurers thinking that was going to result in a claim being denied and we have tried to explain to them that they have to be open, which is the Honeywell model ? and I think that has really helped us," Fuchs said.

The payoff that awaits those who are prepared to be more open with their carriers is that some relationships will improve. "I think we found out that some of our relationships got better after the loss," Gier said.

Communication is also important when it comes to interacting with the other decision makers in your company, and when it comes to managing expectations.

Diaz said that means knowing the nature of the person you are communicating with and managing your message, and the amount of data you transmit. "You have to understand the culture of your company and the individuals you are dealing with," Diaz said.

She said that means when you are talking with a CFO, talk CFO-speak. If they like things short and sweet and just want to see numbers, talk about what kind of recovery they might be able to expect and when they might be able to expect it; something that can be handled in a three-line e-mail.

When you are talking to attorneys, talk their talk. Understand the mind set of the person you are dealing with and get out in front of their concerns with the information they are going to need.

BUSINESS CONTINUITY

Not all communication within the enterprise is verbal or electronic, of course. There's still a lot to be said for putting things in long-form writing. Companies with written business continuity plans saw far better results in their claims resolution than companies without them.

In fact, 80 percent of risk managers with companies that had a business continuity plan boasted a "successful" or "very successful" outcome of their claims resolution process, according to the survey.

Compare that with the result that only 58 percent of risk managers with companies that didn't have business continuity plans reported their claims resolution outcome as "successful" or "very successful." And according to our experts, managing the plan is the same as managing the claim and managing the communication process. It requires creating a sense of ownership over the process.

Different companies, as our survey discovered, are in different phases of developing business continuity planning. Some have it firmly screwed down in the risk management department, some house it elsewhere and some don't quite know yet where they want to house it.

Many mature organizations do give risk management a strong say in business continuity planning. Xerox's Diaz said she has given herself the tools to assemble who in each department is responsible for assessing the information necessary to evaluate a business continuity loss.

"I have set the foundation. It's not perfect but it does get people thinking about the piece of information that they need and insures that there is always a finance person from the local operation on the team," Diaz said.

That thinking applies not only to the members or your team but your suppliers. Imagine if you were an Al Gier in charge of General Motors sprawling international supply chain and the risk breaks in that chain could mean in terms of interrupting the business.

"You have to constantly monitor," Gier said. "We have found a lot of value in partnering with our suppliers and finding out how they develop their plans," Gier said.

That's a lot of work for anyone. But Gier feels the sense of security given him by the business continuity planning done by his suppliers is well worth having.

September 1, 2010

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