The Missing ERM Puzzle Piece
The risk management community has talked about the benefits of enterprise risk management (ERM) for years. But an honest assessment of most ERM efforts concludes that execution remains exceedingly difficult.
Finally, the latest breed of risk management information systems (RMIS) such as Willis DataWize, powered by Riskonnect, makes these much-talked-about benefits possible. DataWize empowers risk managers to support enterprise-wide needs, such as risk identification and assessment, crisis response and asset tracking in addition to traditional claim and policy information management.
The new capabilities increase a risk manager’s strategic value to their company and are even earning them board-level exposure through new reporting and dashboard capabilities. George Haitsch of Willis understands the importance of this, both as a former risk manager and through watching the efforts of past colleagues and current clients.
“I’ve seen the new RMIS systems have a significant impact on their deliverables and frankly on their careers,” Haitsch said. “A risk manager can facilitate a high-level conversation with insightful data and analysis, instead of walking into a meeting with a four inch thick TPA report and a spreadsheet on the cover.”
“It takes work off your desk. It frees up your time to do more strategic things. It’s hard to convey just how much the system alleviates many pain-points experienced by risk managers.”
— George Haitsch, Executive Vice President, North American Practice Leader, Willis Global Solutions
Not all RMIS technologies are created equal, nor can they have the same impact upon a risk manager’s success. Haitsch, now serving as practice leader, Willis Global Solutions North America, illustrated the point with a recent client meeting.
“I went into a meeting with a client who was a longtime user of another RMIS system, and when the client started to see the capabilities of Willis DataWize, an ‘ice-cold courtesy’ meeting turned into an ‘I gotta get that’ meeting in 30 minutes,” he said.
What won that risk manager over? Ultimately, it was the unique capabilities inherent in Willis DataWize–capabilities that would enable this client to transcend traditional policy tracking.
Some of the most important benefits Haitsch sees Willis DataWize, powered by Riskonnect providing his clients include:
Data Collection and Tracking: Any system is only as good as the data that it collects. Willis DataWize enables risk managers to easily configure fields and create custom web-based forms that can be completed by users in the field. Automated tracking, reminders and data controls help to ensure accurate, clean data. Information for renewals can now be collected in weeks, not months, and injury reports can easily be submitted in real time.
“It takes work off your desk. It’s almost as if the system is functioning as a member of your team,” Haitsch said. “It frees up your time to do more strategic things. It’s hard to convey just how much the system alleviates many pain-points experienced by risk managers.”
Underwriting Differentiation: One of the most important responsibilities of a Willis broker is to represent their clients to the underwriting community. “Willis is always working hard on our clients’ behalf to differentiate their risks to the underwriting community,” said Haitsch. Willis brokers leverage the quality data provided by DataWize to support those efforts.
“When a company can present detailed, timely information about their risk profile, it certainly helps build credibility and trust in the eyes of an underwriter,” Haitsch added.
Global Integration: DataWize unifies global organizations with one fully integrated system. Most RMIS tools cannot be integrated on a global risk platform. Previously, Fortune 50 users had to buy separate systems from different providers in Europe and patch them together. A risk manager must have a RMIS solution that matches their global footprint.
Board Level Reporting: Risk managers are utilizing DataWize’s easily configured dashboards and reports to produce highly valued information for executive management and directors.
“Board reporting components are simply spectacular!” asserted Haitsch. “The system is truly transformative to a risk manager because it enables them to provide the information that senior executives and directors crave. I’ve seen multiple clients become valued facilitators of board level strategic discussions.”
The Willis Approach
Willis’ primary goal is to empower its clients to be successful when it comes to risk, and it accomplishes this goal by remaining focused and partnering with leading companies to provide best-in-class complimentary service to their clients. The Riskonnect partnership, launched in 2010, demonstrates how providing enterprise-class risk technology helps Willis stand out from their competition.
“Board reporting components are simply spectacular!” exclaimed Haitsch. “The system is truly transformative to a risk manager because it enables them to provide the information that senior executives and directors crave. I’ve seen multiple clients become valued facilitators of board level strategic discussions.”
Ultimately, Haitsch appreciates Riskonnect’s positive response when his clients have asked for custom solutions and RMIS innovations. He said,
“They always want to get to YES.”
Haitsch knows that risk managers appreciate the value of people saying “YES,” from underwriters and TPAs to property managers – all the way up to executive leadership.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Riskonnect. The editorial staff of Risk & Insurance had no role in its preparation.
Coping with Cancellations
Airlines typically can offset revenue losses for cancellations due to bad weather either by saving on fuel and salary costs or rerouting passengers on other flights, but this year’s revenue losses from the worst winter storm season in years might be too much for traditional measures.
At least one broker said the time may be right for airlines to consider crafting custom insurance programs to account for such devastating seasons.
For a good part of the country, including many parts of the Southeast, snow and ice storms have wreaked havoc on flight cancellations, with a mid-February storm being the worst of all. On Feb. 13, a snowstorm from Virginia to Maine caused airlines to scrub 7,561 U.S. flights, more than the 7,400 cancelled flights due to Hurricane Sandy, according to MasFlight, industry data tracker based in Bethesda, Md.
Roughly 100,000 flights have been canceled since Dec. 1, MasFlight said.
Just United, alone, the world’s second-largest airline, reported that it had cancelled 22,500 flights in January and February, 2014, according to Bloomberg. The airline’s completed regional flights was 87.1 percent, which was “an extraordinarily low level,” and almost 9 percentage points below its mainline operations, it reported.
And another potentially heavy snowfall was forecast for last weekend, from California to New England.
The sheer amount of cancellations this winter are likely straining airlines’ bottom lines, said Katie Connell, a spokeswoman for Airlines for America, a trade group for major U.S. airline companies.
“The airline industry’s fixed costs are high, therefore the majority of operating costs will still be incurred by airlines, even for canceled flights,” Connell wrote in an email. “If a flight is canceled due to weather, the only significant cost that the airline avoids is fuel; otherwise, it must still pay ownership costs for aircraft and ground equipment, maintenance costs and overhead and most crew costs. Extended storms and other sources of irregular operations are clear reminders of the industry’s operational and financial vulnerability to factors outside its control.”
Bob Mann, an independent airline analyst and consultant who is principal of R.W. Mann & Co. Inc. in Port Washington, N.Y., said that two-thirds of costs — fuel and labor — are short-term variable costs, but that fixed charges are “unfortunately incurred.” Airlines just typically absorb those costs.
“I am not aware of any airline that has considered taking out business interruption insurance for weather-related disruptions; it is simply a part of the business,” Mann said.
Chuck Cederroth, managing director at Aon Risk Solutions’ aviation practice, said carriers would probably not want to insure airlines against cancellations because airlines have control over whether a flight will be canceled, particularly if they don’t want to risk being fined up to $27,500 for each passenger by the Federal Aviation Administration when passengers are stuck on a tarmac for hours.
“How could an insurance product work when the insured is the one who controls the trigger?” Cederroth asked. “I think it would be a product that insurance companies would probably have a hard time providing.”
But Brad Meinhardt, U.S. aviation practice leader, for Arthur J. Gallagher & Co., said now may be the best time for airlines — and insurance carriers — to think about crafting a specialized insurance program to cover fluke years like this one.
“I would be stunned if this subject hasn’t made its way up into the C-suites of major and mid-sized airlines,” Meinhardt said. “When these events happen, people tend to look over their shoulder and ask if there is a solution for such events.”
Airlines often hedge losses from unknown variables such as varying fuel costs or interest rate fluctuations using derivatives, but those tools may not be enough for severe winters such as this year’s, he said. While products like business interruption insurance may not be used for airlines, they could look at weather-related insurance products that have very specific triggers.
For example, airlines could designate a period of time for such a “tough winter policy,” say from the period of November to March, in which they can manage cancellations due to 10 days of heavy snowfall, Meinhardt said. That amount could be designated their retention in such a policy, and anything in excess of the designated snowfall days could be a defined benefit that a carrier could pay if the policy is triggered. Possibly, the trigger would be inches of snowfall. “Custom solutions are the idea,” he said.
“Airlines are not likely buying any of these types of products now, but I think there’s probably some thinking along those lines right now as many might have to take losses as write-downs on their quarterly earnings and hope this doesn’t happen again,” he said. “There probably needs to be one airline making a trailblazing action on an insurance or derivative product — something that gets people talking about how to hedge against those losses in the future.”
Electronic Waste Risks Piling Up
The latest electronic devices today may be obsolete by tomorrow. Outdated electronics pose a rapidly growing problem for risk managers. Telecommunications equipment, computers, printers, copiers, mobile devices and other electronics often contain toxic metals such as mercury and lead. Improper disposal of this electronic waste not only harms the environment, it can lead to heavy fines and reputation-damaging publicity.
Federal and state regulators are increasingly concerned about e-waste. Settlements in improper disposal cases have reached into the millions of dollars. Fines aren’t the only risk. Sensitive data inadvertently left on discarded equipment can lead to data breaches.
To avoid potentially serious claims and legal action, risk managers need to understand the risks of e-waste and to develop a strategy for recycling and disposal that complies with local, state and federal regulations.
The Risks Are Rising
E-waste has been piling up at a rate that’s two to three times faster than any other waste stream, according to U.S Environmental Protection Agency estimates. Any product that contains electronic circuitry can eventually become e-waste, and the range of products with embedded electronics grows every day. Because of the toxic materials involved, special care must be taken in disposing of unwanted equipment. Broken devices can leach hazardous materials into the ground and water, creating health risks on the site and neighboring properties.
Despite the environmental dangers, much of our outdated electronics still end up in landfills. Only about 40 percent of consumer electronics were recycled in 2013, according to the EPA. Yet for every million cellphones that are recycled, the EPA estimates that about 35,000 pounds of copper, 772 pounds of silver, 75 pounds of gold and 33 pounds of palladium can be recovered.
While consumers may bring unwanted electronics to local collection sites, corporations must comply with stringent guidelines. The waste must be disposed of properly using vendors with the requisite expertise, certifications and permits. The risk doesn’t end when e-waste is turned over to a disposal vendor. Liabilities for contamination can extend back from the disposal site to the company that discarded the equipment.
Reuse and Recycle
To cut down on e-waste, more companies are seeking to adapt older equipment for reuse. New products feature designs that make it easier to recycle materials and to remove heavy metals for reuse. These strategies conserve valuable resources, reduce the amount of waste and lessen the amount of new equipment that must be purchased.
Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels.
For equipment that cannot be reused, companies should work with a disposal vendor that can make sure that their data is protected and that all the applicable environmental regulations are met. Vendors should present evidence of the required permits and certifications. Companies seeking disposal vendors may want to look for two voluntary certifications: the Responsible Recycling (R2) Standard, and the e-Stewards certification.
The U.S. EPA also provides guidance and technical support for firms seeking to implement best practices for e-waste. Under EPA rules for the disposal of items such as batteries, mercury-containing equipment and lamps, e-waste waste typically falls under the category of “universal waste.”
About half the states have enacted their own e-waste laws, and companies that do business in multiple states may have to comply with varying regulations that cover a wider list of materials. Some materials may require handling as hazardous waste according to federal, state and local requirements. U.S. businesses may also be subject to international treaties.
Developing E-Waste Strategies
Companies of all sizes and in all industries should implement e-waste strategies. Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels. That’s a complex task that requires understanding which laws and treaties apply to a particular type of waste, keeping proper records and meeting permitting requirements. As part of their insurance program, companies may want to work with an insurer that offers auditing, training and other risk management services tailored for e-waste.
Insurance is an essential part of e-waste risk management. Premises pollution liability policies can provide coverage for environmental risks on a particular site, including remediation when necessary, as well as for exposures arising from transportation of e-waste and disposal at third-party sites. Companies may want to consider policies that provide coverage for their entire business operations, whether on their own premises or at third-party locations. Firms involved in e-waste management may want to consider contractor’s pollution liability coverage for environmental risks at project sites owned by other entities.
The growing challenges of managing e-waste are not only financial but also reputational. Companies that operate in a sustainable manner lower the risks of pollution and associated liabilities, avoid negative publicity stemming from missteps, while building reputations as responsible environmental stewards. Effective electronic waste management strategies help to protect the environment and the company.
This article is an annotated version of the new Chubb advisory, “Electronic Waste: Managing the Environmental and Regulatory Challenges.” To learn more about how to manage and prioritize e-waste risks, download the full advisory on the Chubb website.
This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Chubb. The editorial staff of Risk & Insurance had no role in its preparation.