RIMS Conference in LA Risks No Loss of Subject Matter

Renewal of the Terrorism and Risk Insurance Act was a much talked about topic at the annual Risk and Insurance Management Society conference, a four-day event in Los Angeles, Calif. in late April that included panels focused on a variety of risk-based matters.

More than 9,000 insurance industry professionals and people involved with risk management were at the conference, which included 376 exhibitors, according to RIMS Executive Director Mary Roth.

A hot topic at the conference was TRIA, and its pending expiration date, which is high on RIMS’ legislative radar this year, according to Carolyn Snow, board liaison to RIMS External Affairs Committee.

“We are very concerned about the renewal of TRIA, which expires in 2014,” said Snow, who talked about the importance of not waiting until next year to renew the act to avoid potential coverage gaps.

RIMS lobbyists and members have started meeting to develop a campaign to push for a quick renewal of the act, which will include polling members this summer, according to Nathan Bacchus, RIMS senior government affairs manager.

“That’s our No. 1 national issue right now,” he said.

Aside from networking and panels the conference served as an occiasion to deliver news and reports from RIMS and its supporting organizations.

According to a report issued at the start of conference, risk managers will play a greater role in strategic planning in the near future.

At a joint press conference held by Marsh and RIMS the two entities delivered a study that showed more than half of C-Suite executives and nearly half of all risk professionals responding to the 10th annual Excellence in Risk Management survey agreed that the top reason why risk management is included in strategic planning and executive activities is to identify and assess risks arising from the strategic plan.

However, only 15 percent of the risk professionals and one-fifth of the C-Suite respondents said the risk manager is a full member of the strategic planning or executive teams.

The authors of the report say there is a move toward risk managers doing more within organizations, a trend Carol Fox, director of the strategic and enterprise risk practice at RIMS, said she’d like to see more of.

The opportunity is growing for risk managers to play a role beyond just assessing risk, but for them to seek out more enterprise, serve as problem solvers and offer support.

Those who can do that, “there’s no question you will be thought of as strategic,” she said.

Fox added, “I think these are positive trends.”

The report also revealed the top risks for 2013, which include business disruption, economic conditions, cash flow, regulatory compliance, destruction and loss of physical resources, litigation or claims and natural disaster.

Superstorm Sandy may be behind the rise in concern over business disruption, which moved from being the No. 6 ranked concern in 2012 to the No. 1 ranked concern this year, according to authors.

While they may be playing a more important role in organizations, chief risk officers are also earning more, according to another report issued during the conference.

That report shows the average base salary for CRO’s rose from $170,683 in 2008 to $183,572 in 2013, nearly a 7.5 percent increase over the five year period. The survey is released every other year by RIMS and, this year’s survey comprised data from 2,246 completed surveys.

Panels at the conference included focuses on energy, the restaurant industry, technology, transportation, workers’ compensation, sustainable buildings, real estate, construction risk, intellectual property, lessons learned from the 2011 earthquake in Japan, enterprise risk management, supply chain risk, doing business in China and selecting and working with brokers.

Aviation

During an aviation industry session, speakers addressed current risk and challenges faced by companies in that industry.

Panelist Steven Whitlock, senior vice president of AirSure Ltd. in Plano, Texas, talked about general aviation issues, and noted that not including military and commercial aircraft, there are more than 360,000 aircraft in that category. Those aircraft conduct more than 35 million flights annually and that category alone accounts for more than 1.2 million employees, according to Whitlock, who noted the category includes fixed-wing and rotary aircraft, hangars, parts suppliers, maintenance operations.

Whitlock said he sees this general aviation category growing as major airlines consolidate and cutback air service to air hubs, and that the number of insurers in this space have doubled recently.

However, despite the increased competition, many insurers are reluctant to take on a wide variety of risks, he said, adding, “They don’t all have an appetite for all of the risk.”

Japan Earthquake

In a session on business continuity plans, two risk experts from Japan came to discuss the lessons learned from the Japan earthquake in 2011.

Shinichi Beppu, a risk manager with Fukuoka Chuo Accounting, and Hitoshi Ueno, a risk management consultant with RM Net Office, noted the impact of the earthquake and tsunami is still unfolding for that country — nearly 60 percent of private business sales were impacted following the event, according to their studies — but that the impact and visual evidence of the disaster is on its way in bits and pieces to the shores of the Western U.S.

Several boats, a dock and even marine life have made their way to the Western U.S., mainly Washington and Oregon, but Ueno said a large rubble pile that is now visible from the Big Island in Hawaii should arrive in the Western U.S. about this time next year.

“March of next year the entire West Coast of the U.S. will see the debris,” Ueno said.

The men talked about preparedness, but said the tsunami that followed the 9.0 megaquake was larger than risk managers believed could be possible.

Risk managers at Toykyo Electric Power estimated that no tsunami over 19 feet could be generated in the area if its Fukushima nuclear power plant, which unleashed a potential worst-nightmare nuclear crisis after the tsunami overran the facility.

“They were wrong,” said Ueno, pointing to images of devastation wrought by tsunamis waves that peaked 50 to 70 feet in some areas.

Casinos

Risk in the casino industry must be weighed against the odds that whatever enterprise is being undertaken by the casino operator will prove worth it.

That was according to experts on a panel focused on the casino industry, which included Christian Ryan, senior vice president of Willis, Joy Sinberg, deputy director of risk management for the Seminole Tribes of Florida, and Doug Wyrsch, executive director of insurance for MGM Resorts International.

Sinberg outlined the areas of exposures with which casino operators are concerned, including entertainment, pyrotechnics, environmental exposures, product liability and security.

Entertainment is a risk, she said, because a casino operator can go out and book a big act that might draw droves of ticket payers and would-be gamblers, but it’s crucial to weigh whether that act was worth it.

“What are they bringing to the table,” is an essential question to ask, she said. Acts that draw rowdy crowds, or entertainers demanding to be paid too much are not worth it, she added.

Conversely, one added feature brought to her attention recently was a “Dinner in the Sky” event in which dignitaries, VIPs and big spenders were hoisted on a platform via crane high in the air for a dinner and a view of the casino and surrounding area.

It was a risk consideration, but the marketing value was worth it, she said.

Real Estate

In a real estate panel speaker Jeff Alpaugh, managing director of the global real estate practice for Marsh & McLennan Cos., talked about the lessons learned from Superstorm Sandy, which have racked up $20 billion in insured losses and counting.

Among the struggles amid the recovery from the massive storm that slammed into the Eastern Seaboard in 2012 has been a struggle to understand what was and was not covered under the National Flood Insurance Program, he said.

“There’s a lot of confusion about NFIP and what it covers,” Alpaugh said.

Among the other impacts are new flood maps in which new assets are becoming part of a new flood hazard zone, and increased pricing, he said.

Green Construction

In a panel on green construction Stephen Grossmark, a partner in Tressler LLP, said interest in obtaining LEED certification is picking up, and that green standards should be considered dynamic, although achieving the minimal level of LEED is not difficult.

“It’s not whether you’re going to get a LEED certification, it’s how green you’re going to be,” he said.

The next version of LEED standards are due out by the end of the year, he noted.

James McLnerney, a vice president at Leopardo Cos. Inc., sees the green trend as just at the beginning.

“What’s interesting about the sustainable movement is it’s unknown,” he said. “It’s still in its infancy.”

He also said he sees more interest in LEED as costs to build sustainably continue to come down.

According to his figures, it adds roughly between 5 percent and 8 percent to a building’s cost to achieve platinum certification, the highest level of LEED. To get to gold it adds 3 percent to 5 percent and silver adds 1 percent to 3 percent. To get a basic LEED certification the cost is minimal, he said.

Selecting Brokers

In a panel on selecting and working with a broker Michael McDonald, vice president of enterprise risk management for Quality Distribution Inc., a transportation company in Tampa, Fla., said risk managers like him may be out shopping for agents more often as the insurance market continues to change.

“As you all know the insurance marketplace is rapidly hardening,” he added.

McDonald has a detailed process with which he measures whether his incumbent brokers are giving him the best value and products.

McDonald, who said he conducts a competition for his business about every three years, described the method he uses to choose competitors, and conduct a competition between brokers.

He uses referrals, industry associations, publications and ongoing working relationships to help choose a list of brokers to consider bringing in to evaluate.

Among the top reasons he goes out to bid with a request for proposals are broker service issues and assurance of competitive products and pricing, he said.

McDonald said he likes to dwindle down the competition to two brokers and then assign markets during the RFP process in which brokers get product pricing and information, a method he feels is a more competitive process that will lead to the best prices and the best products for his company.

McDonald said he gives the broker competing for his business against the incumbent all necessary information, such as access to the policies and loss runs, except for premiums paid so as not to set a target price, but instead encourage the broker to go out and find him the best price.

His selection criteria also includes: industry expertise, size and type of organization, technical competence, market access, financial condition, marketing philosophy and location. Other factors include knowledge, personality, philosophy and reputation.

Also on the panel was Todd Marumoto, director of risk management for toymaker Mattel Inc., and Tim Carlson, senior vice president of Willis Group North America.

Marumoto talked about the importance of ethics in the process of choosing a broker, emphasizing there needs to be a “code of mutual appropriate conduct.”

“I think full and total disclosure is absolutely necessary,” he said.

Marumoto also prefers to include in RFPs “exactly what is expected from the relationship with the broker,” he said.

Topics Catastrophe Agencies Profit Loss Louisiana Aviation Training Development Risk Management Japan