In today's challenging business environment, it is more important than ever that the three points of the risk program triangle-insurer, broker and buyer-can work together to protect the policyholder's employees and the bottom line. From identifying risk to developing mitigation strategies to tracking program results, all parties play a role. But building a strong partnership-with clear roles, responsibilities and timelines-produces far better results than everyone working on a loose team. Risk Management spoke with six risk professionals about the best ways for insurers, brokers and buyers to work together. Those six individuals are:
- ANDREW CATAPANO, President, USI Northeast
- CHRISTOPHER de WOLFE, Risk Manager, Mars, Incorporated
- DAVID DWORTZ, Executive Vice President, Middle Market, Eastern Division, Liberty Mutual
- DAVID EAGLEN, Senior Vice President & General Manager, National Market Liberty Mutual
- GEORGE KUKLEVSKY, Managing Director, Marsh
- RON YAKIN, President, American Pecco Corporation
Commercial insurance buyers, brokers and insurers work together to effectively manage a company's risk. What are the strengths of each of these groups? How can they best identify the risks faced by a company, build a program to mitigate those risks, measure the performance of that effort, and adjust it as needed?
Kuklevsky: I think that one of the strengths of the client is the knowledge of his or her own business and their ability to articulate it to their risk partners. Brokers like to think we know our client's business, and we do to a certain extent. Clients know what their strategies are, they know their operations, their exposures, what their goals are. It is our responsibility as brokers to get as close to that knowledge base as possible, to understand the client's risk management goals and objectives. We bring industry and peer knowledge, knowledge of the marketplace, as well as provide risk management tools that not only compliment the client's focus on, for example, loss control and claims, but also the carrier's. At the end of the day it works because there are three parties working vigorously at it, with the same vision, to accomplish the same goals.
de Wolfe: It is a trifecta, no doubt about it. The way that we see it at Mars, the three participants--Mars, Marsh and insurer-are working in a mutually beneficial relationship. Our department is very small relative to the size of our organization, so it is imperative that we can rely on the other members in the relationship. For us, the process of buying insurance is only one part of what we do. It's an important part, but relatively small. For us, as managers of risk, we are primarily implementing processes and systems that reduce our exposure to risk and either prevent the need to have insurance, or at least make ourselves the most attractive risk possible so insurance is available at competitive terms and conditions.
You'll need insurance, you'll want insurance, but, what we have are full-time professionals who manage risk, mostly to make sure that we don't have losses in the first place. At the end of the day, if there's a claim that involves a loss of a factory, you know that the insurance policy will pay out-fantastic. It will probably pay your business interruption and that's great too, but it doesn't put products on the shelf. And if we don't have product on the shelf, then we don't have a business and that's why managing risk is a very important part of what we're doing.
We have representation in more than 80 countries around the world. We have a risk management department of 84 people, which is quite sizeable. The reason we have a department of 84 is because we have four full-time associates at Mars and we have 80 Marsh account executives that manage our program for us around the world as well as locally. So we really do see our insurance broker as an extension of the risk management department and our insurer as our risk partner.
Eaglen: Our responsibility in the partnership is providing all the loss control, claims services and risk information systems while measuring our success along the way. In this particular program, I know Marsh's safety and Mars' safety and Liberty's safety folks work together to reduce loss and our ultimate goal is to have minimal claims. I've got a team of people that work daily with Mars, and talk to them constantly about losses and controls, continually building and monitoring loss control programs to help mitigate loss so they can go about focusing on the core business of Mars.
Yakin: I think it is very important for the broker and the carrier to understand our business, understand the risk and share with us their expertise and what other companies are doing. For our company, we understand that reducing loss saves us money, not only in dollars and cents, but also from the human aspect of protecting our employees.
Catapano: We believe our role as a broker is to be an extension of our client's risk management department. In that role, it is imperative that we completely understand the client's business, what they are trying to accomplish and their exposure to risk. Ron is our client and he runs a very successful construction company in the Northeast. As his broker, it is important for us to provide strategic analysis that will help him determine his current risk profile, the economic impact of that profile, the most suitable carrier and the proper risk financing methodology. We must also provide him with relevant and industry specific information to help determine proper coverage design, peer group analysis and retention limits. Our overall responsibility with our clients is to make sure that we offer the right resources and expertise to manage their risk.
What are some of the key ingredients of a strong relationship between a buyer, broker and insurer? How can all three best work together to make sure that relationship stays strong and the risk program remains effective?
Yakin: We have long-term relationships with our customers, our professionals, our accountants and our insurance companies. I think we've been with Liberty Mutual for more than 20 years, so it's very important that if you have a little blip in the cycle, then, in this case, Liberty Mutual or USI would understand that we're in it for the long haul. We're not just shopping a rate from one year to the next. It's important to keep that relationship going. We have a lot of contact with Liberty Mutual and now USI. We schedule claims reviews and other meetings so there is a constant flow of interaction throughout the year. We're not as big as Mars, but we rely on Liberty Mutual and USI as our in-house insurance department. I've dealt with their service people for probably 20 years. And that gives me a lot of comfort that everything is being taken care of.
Catapano: I think what we all want and strive for is that long-standing relationship based on trust. A relationship that helps both of us weather the up and downs of the economic environment and insurance capital markets. We must remember that each client is different and unique and each program can include elements of self insurance, risk avoidance and risk transfer. Our objective is to work with our clients throughout the year developing a partnership whereby everything we do is connected to their business objectives, issues, goals and strategies. In my opinion, you cannot accomplish all those goals once a year at the time of the renewal. Renewals can at times be stressful and complicated. As a broker you must make the time during the course of the year to get to know your client, get to know their business, understand what they are trying to accomplish and their philosophy around risk. That's how strong and lasting relationships are built.
de Wolfe: We put that into action every year. We hold mid-term meetings, quarterly meetings and, as you mentioned, regular claim file reviews. But at Mars it's important to make sure that our risk partner understands us intimately so that they can make informed decisions and perhaps go the extra yard for us when we need it. We do this by having an open flow of dialogue with them and hosting visits to our facilities around the world. By doing this, we are working to avoid the market fluctuations as much as possible. In addition, we continue to work with our risk partners to ensure that they have confidence that we are a good risk and that we're going to be here for the long run. You need to know that you can go to your direct underwriting contact and know that they understand the risk. We are sometimes expecting those people to take a risk themselves and we have to be able to support them when they need to explain underwriting decisions to senior management.
Dwortz: The same type of thing happens in the middle market business. We call it the "Stewardship Process," which has many touch points throughout the year. We have the day-to-day contact with the loss control, claims and account service people, but we also have touch points with management of the buyer and agent/broker to ensure that we are living up to our service commitments. This can't happen just at renewal time; it has to happen throughout the year. We try not to think of it as an event, but as a living, breathing partnership throughout the year at all levels of the organization. The renewal takes care of itself if we are consistently connected to each other's business.
What are the keys to maintaining good communication between carrier, broker and buyer? How can all partners improve that communication?
Kuklevsky: When I entered the brokerage business back in the 1970s, we rarely encouraged face to face meetings with carriers. It was just not done, and I could never understand it. I think you have to have good team support that is responsive to the client. There must be open dialogue, open lines of communication. We have to be able to confront and reflect on it positively, looking for a collective solution to the problem. There is no place for finger pointing.
Catapano: What we try to do with our clients is to be as proactive as we can be-providing industry and insurance market intelligence, being mindful of the current economic climate and giving them all the tools and resources that they would find useful. The very last thing you want to do is to go silent. Even when you have clients who for whatever reason cannot make a lot of time for you, you must continue to feed them relevant information and alternatives. As a broker what you want to avoid is having a client who doesn't feel that they are in control of their insurance program. Make sure that your goals are in alignment with the company's risk management philosophy and take a consultative rather than a transactional perspective.
How can buyers, brokers and insurers partner together to develop risk mitigation strategies? What are risk managers and brokers looking for when it comes to receiving good risk mitigation support from their insurance partners?
Yakin: We have worked very closely with Liberty Mutual's loss prevention. They assigned a person to our account who works with our safety people. They design a program, they also visit our shops and our facilities, looking at how we make repairs to equipment, how we load equipment, how we store equipment and how we work on electrical equipment. I remember they recommended using special shock prevention gloves for the workers. They would make up this program in conjunction with our loss prevention people and work together to try to develop a program that would be implemented in all of our facilities.
Eaglen: Loss control is an integral part of our culture. If you walked into 175 Berkeley Street [Liberty Mutual's headquarters] and looked up on the front entrance wall, you'd see our corporate creed is about, "helping people live safer, more secure lives." That's been on the wall since the company first opened its doors. We deeply believe in that and therefore, that's what our business and culture is based on.
Dwortz: From my perspective, I think we flat-out invest more in loss prevention than most other companies do. We have the Liberty Mutual Research Institute for Safety in Hopkinton, Massachusetts and another one in China and we have a fire safety lab in Wausau, Wisconsin. We also employ a number of engineers, doctors and other experts to focus on risk mitigation to protect our policyholders' business, their employees and reduce their total cost of risk.
de Wolfe: And as you do all this work for so many other companies, we get access to all that knowledge. We are Mars, we know about everything that we do, but what happens that we don't know about? What happens in the crane industry? Is there anything in that industry which could be relevant to what we do? The comment about gloves for electric shock is not exclusive to that company. It's relevant to ours too. So the benefit that I see is that it brings external expertise, telling us what happens to the rest of the world. Again, we know what happens under our roof, but these guys come in and tell us what happens under other people's roofs.
Catapano: I think Chris brings up an interesting and important point. Think about what is represented at this table with USI, Marsh and Liberty Mutual. A lot of resources and capabilities are available from each of us. The challenge, the mandate for us, is to make sure that our clients have access to what is available. Our clients have the need for risk management services, support and analysis but typically have limited internal resources. Our ability to provide claims and loss control analysis and to share our industry specific and carrier intelligence with our clients and to discuss alternative strategies will create real value for our clients. Whether we accept it or not, our competitors are also talking to our clients and the very last thing that we want is for them to solve a problem that we missed. So we continue to be proactive and make sure that we are communicating frequently--not just at the renewal.
Dwortz: What allows us to take the relationship to a strategic level is having agents and policyholders who are willing to open up and share their business strategies and critical objectives and allow us in to provide our expertise and share the knowledge we have from serving companies around the world.
Kuklevsky: It is important from the broker's perspective to be in that mix, to develop and continue to improve ways of dealing with risk, whether it is workforce strategies, asset conservation, whatever. This is as important as brokering and servicing insurance placements. As Andrew said, if you are not doing it, bringing new ideas, concepts to your client, somebody else is. There is project work that comes up periodically, things that are important to Mars, in support of their risk management goals. Just recently we completed an assessment of their use of occupational nurses in dealing with workers compensation claims. It's an ongoing process.
With buyers, brokers and carriers all feeling expense pressures, how can they collaborate to be more efficient and balance the needs of all parties?
Catapano: I look at the current economic and political climate as an additional opportunity to communicate with our clients. In this ever changing environment, it is important to help our clients understand the current insurance marketplace and why carrier relationships are so important and critical in providing necessary coverage. Our ability to provide solutions is based in the understanding that insurance is just another form of capital and by its nature is often the most efficient financial solution available. It is also important to think with your clients in terms beyond commoditized product sales and make it clear that, for risk management, insurance is only one of the available tools.
Eaglen: Our balance sheet is strong and we have always paid attention to our budget, but budgets are not paramount, it is not what drives us. What is driving us is the needs of our customers. This account, in particular, has some new risks that they've brought on board this past renewal and we are applying more services to this account than before, so it is a case-by-case basis. From a business perspective, the budget is there, but it is not what drives us.
de Wolfe: There are five steps to managing risk and one of the most important ones is the last one-continue to evaluate your decision and make sure you have got the right risk management measure in place. So you have done all the first four steps. You have identified and analyzed the risk, you have considered how you are going to address it, you have implemented and maintained measure most likely to reduce the risk, but you have to keep reviewing it to make sure you made the right decision. A properly working relationship with your broker and risk partner keeps your program under a perpetual state of review.
Dwortz: There are a lot of things that are driving our economics, like investment returns and reinsurance costs, which suggest higher insurance prices need to be in place. However, we have also been in an economic environment where our customers, in many cases, are not in a position to absorb higher rates. That puts more pressure on all of us, including the agent/broker and carrier, to make sure our operations are as efficient as possible.
How has the challenges of this environment provided you with an opportunity for risk management success? What are some triumphs you have experienced recently?
Yakin: Our property is insured with Liberty Mutual, and when we had a hurricane in Texas, we looked at the policy and noticed that the wind damage deductible had increased, so we went back to Liberty Mutual and asked what happened and why. They checked into their records and noticed that it should not have been changed so they reversed it. That was a very good point in the relationship. Another example was when we had a claim where one of our employees was seriously hurt. The Liberty Mutual nurses were involved in the rehabilitation of the worker and we created some light duty work for him. He's now back working for us. We also met with loss prevention to see what could have been done to prevent the accident.
Dwortz: That example is really powerful. These were very serious injuries-life threatening injuries-and the teamwork in the relationship really showed itself. Not only did we have the Liberty Mutual nurses and doctors involved with the hospitals, but we had a partner in American Pecco who put their money where their mouth is. They were committed to finding alternative work arrangements and they were committed to the vocational rehab that was required. We can provide those services, but we needed a partner on the other side to embrace that approach.
Yakin: I don't know if any other carrier would have had the resources to help us get this employee back to work and get him healthy again. We have a lot of long-term employees so we understand that when dealing with a claim, it's not only about dollars and cents, but the personal effect on employees and their family. So we were very pleased with the outcome.