attributes of high performing risk management organizations kenneth sipiora, cpcu director deloitte...

Attributes of High Performing Risk Management Organizations

Kenneth Sipiora, CPCUDirectorDeloitte Consulting, LLPActuarial, Risk & AnalyticsIrving, [email protected]

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Deloitte

A leading professional services firms, providing Audit, Tax, Consulting and Financial advisory services to leading organizations worldwide

Deloitte Touche Tohmatsu – global organization of member firms

130,000 + professionals – 150 countries

Deloitte in North America

45,000 + professional staff – 90 North American cities

About Deloitte - Facts and figures

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Deloitte ARA is the largest risk /insurance advisory practice among the “Big 4” firms:

− 600+ global professionals; NA, UK, EMEA, Asia Pacific− 20 Partners/Directors, 220 NA staff – 12 cities− Industry professionals experienced as risk managers, insurance brokers, underwriters, actuaries,

claims operations and technology advisors

Complete spectrum of risk/insurance advisory services:

Risk management

Actuarial and advanced analytics

Claims management

Risk finance

Information systems

Regulatory

About Deloitte - Facts and figures - Actuarial, Risk & Analytics

Leverage full spectrum of Deloitte services and resources

Cross functional teams– Tax

– Attest & Financial Reporting

– Financial advisory

– Consulting

• Technology

• Human Capital

• Strategy & Operations

Risk advisory services Integrated risk solutions

Independence: Deloitte Consulting is neither an agent, broker, underwriter nor other intermediary to insurance transactions

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Risk Management Strategic and

Operational Assessment

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Reviewing Risk Management functions – Leading Practice Comparisons

Risk Management

Leading Practices

Industry Insights

Insurance Technology

Insurance Brokerage

Risk Financing

Insurers

Risk Management Strategy

Key Stakeholder Relationships

Organizational Alignment of Risk Management Function

Risk Management Department Staffing & Expertise

Performance Metrics

Strategic Risk Management

Risk Financing Strategy

Use of alternative risk financing

Insurance program design, including coverage, limits, carriers

Allocations

Actuarial Services

Risk Financing Solutions

Broker Services & Compensation

Business Resumption Planning

Claims Administration

Loss Control Engineering

Risk Management Information Systems (RMIS)

Risk Management Services

Counterparty security

Data management and preservation

Financial controls

Governance

Third party contractual compliance

Administration & Controls

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Focus AreaCurrent State

Observations/Findings

Counterparty Security

Procedure in place to monitor insurer financial strength ratings on an ongoing basis and respond in the event that an insurer drops below the minimum acceptable financial strength rating

Data Management and Preservation

Manual, labor intensive data collection process Risk Management information received from various

sources; no centralized database No integrated reporting functionality

Financial Controls

Claims settlement authority / levels are defined and periodically audited for compliance

Insurance claims and Risk Management costs are transparent and supported by appropriate documentation

Claims administration firms do not provide SAS 70

Governance

Risk Management engages CFO / Treasurer in key risk financing decisions

Risk Management has sufficient oversight of third party vendors

Claims settlement authority established at appropriate levels

Third Party Contractual Compliance

No evidence of enterprise wide process to validate third party compliance with insurance indemnification requirements

Manual, labor intensive process for managing incoming/outgoing insurance certificates

Sample: Observations & Findings – Administration & Controls

Below leading practice

Meets some leading practices

Meets most leading practices

Counterparty security

Data management and preservation

Financial controls

Governance

Third party contractual compliance

Administration & Controls

7Copyright © 2006 Deloitte Development LLC. All rights reserved.


• Focus on own results – “move their own needle”• Mediocrity is not a core competency• Vision• Leadership• Execution

What is about the really top tier Risk Managers that makes them special?



• Focus on own results – Move their own needle

Why bother with benchmarking?

No show of hands needed…we’ve all succumbed to the temptation !


Limitations in Value of Industry Benchmarking

• Timeliness• Accuracy• Relevancy• Medians, Means and Ranges…


Limited Value of Industry Benchmarking

• Timeliness– Age of data

• How current is the information?

• Surveys lag a year or more

– Inconsistent reporting periods• What does a “year” mean?

– Calendar year?– Policy year– Accident year– Is survey data calibrated to your “sundial”

– Rapid changes in business environment• Consolidations and divestitures

• New entrants and concepts

• Downsizing, outsourcing, hurricanes, corporate scandal, etc

• Business moves faster than ever…



• Accuracy– “This survey will only take a few minutes…”

• How valuable /reliable is the “quick and easy’ data gathering?

• Do you really want to rely on someone else's fast work?

– The “reverse fisherman effect”• Unlike “fish stories” you may not hear about the “big ones”

– How much do your competitors really want to share?• You are in tough business…it’s war out there

• “The first casualty when war comes is Truth”

– Lack of third-party validations• Even the best surveys can’t validate the input, therefore…

• How dependable is the data?

– Lies, damn lies and statistics!• Results can be misunderstood /misinterpreted



• Relevancy– “Vive le difference” …its a competitive advantage !– No one is “just like you”

• Yes, size matters !

• Geographies, products, services

• Operations

• Financials– Profitable? Strong financials? Darling of the TSX?– Struggling to stay out of bankruptcy ?– Retained losses; Incurred? Paid? Ultimate?

• Risk Management Operations– Risk Management and Loss Control Budgets– Risk Management Staff?– “In House vs. Out House” Risk Management functions?– Claims service providers vs. self administration?



• Means, Medians and Ranges– What does this mean to you?

• How much comfort does your position relative to others afford?

• You may rank well, but how does this really help your business?

– Are you the best of a “bad lot”• Or, as (Provincial Premier) says, “…thank goodness for (province)

– Averages of Averages…• Source surveys often tend to force fit respondents into broad categories

• Normalizing or balancing data can compromise it’s usefulness

– The “Lake Wobegon Effect” (apologies to Garrison Keilor)• "Where the women are strong, the men are good looking and all of the

children ( …risk managers?) are above average”


Why High Performers move their own needle?

• The “other guy’s” results do not impact their success• They don’t really care about what goes on at their

competitors• Their boss doesn’t consult their competitors when she does

their annual review• They are the best judges of their own success!


How can you move your own needle?

Mediocrity is not a core competency

Vision

Leadership

Execution


Mediocrity is not a core competency(Remember the “Lake Wobegon effect”)

• Measure your success (or failure) against yourself– Change the way you think about Risk Management costs /benefits

• We’ve all heard that frequency begets severity

• Does frequency really matter to your organization? – How much does frequency cost? How does it impact financials?– Devoting big resources (energy, resources, capital) against small $$$ ?

• What about severity? – How much does that cost? – What does severity mean to you? What is your volatility tolerance?

– Identify the impact drivers• Retained losses, big hits vs. little ones

• Risk Transfer

• Service fees; Brokers, TPA’s, Actuaries and yes, even the Consultants

• Prioritize the high impact areas, develop strategies to remedy /manage



• Evaluate data and communicate in the context of your business– Measure Risk Management costs / results like your other business

spends• Can I cost justify investments?

• “Show me the Money” What is my “ROI”

• When / how soon can you show results?

– Speak (learn?) the language of your boss (or her boss, the CXO)• Hint: Insurance jargon sounds like ancient Aramaic to her/him

– Establish risk management metrics tied to enterprise success• How would the CXO view this information?

• How does your organization measure its financial success?

• Contribution to financial metrics (EPS, EBITDA, cash flow, etc..)

• Ask the CXO what she/he wants to hear, when and how


Vision…

• Establish aspirational goals (If we try really hard, what can we achieve here?)– “See your future…be the ball !” Ty Webb (Chevy Chase)

“Caddyshack” 1980– Challenge the status quo; become a “game changer”– Articulate the value proposition

• Positive contribution to metrics

• Impacts and outcomes

– What will it take to get there?• Time, $$$, resources, executive sponsorship

– Seek period over period improvements• Measure results regularly and consistently

• Report progress to stakeholders

• Make changes if results don’t improve


Leadership & “Followership”

• Risk Managers, leave your “superman suit” at home. You can’t fly and you can’t do this alone

• Executive sponsorship & support– Remember your new pal, the CXO

• Money (sooner or later, you’re gonna’ need it !)– Question: “Who’s got it? How can you get some?”– Answer: “Look in the big corner offices” (again, your new best friend

the CXO)

• Lead the culture of change– Build and sell the business case– Evangelize to stakeholders– Acquire sponsorship, gain support, create a following


Execution

• Everyone wants to go to heaven, but few people are willing to die to get there! (Reverend Ron, my father in law)

• Who is accountable around here?– Remember, mediocrity is not a core competency !– This is serious _____ (insert your favorite

expletive here)– Who can deliver the results?

• Business Unit Executives? Line Managers?Regional executives?

– Establish metrics and consequences that drive desired outcomes• Inform and empower stakeholders, then measure outcomes

• Don’t confuse effort with results…the scoreboard never lies

• Influence behaviors– Awards, Recognition, Allocations, Surcharges, Humiliation, Public Executions?– Whatever it takes in your environment– Revisit periodically, adapt to current business environment /objectives

WARNING

Don’t forget your new pals the CXO’s.

They can help you here


Summary

Once again, here is what it takes…

Focus on results…”Move your own needle”


Vision

Leadership

Execution

And….


Always expect the unexpected….

attributes of high performing risk management organizations kenneth sipiora, cpcu director deloitte...

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