Insights Affecting Risk Management and Self-insurance

Quick reviews of new studies and related insights
affecting risk management and self-insurance.
We deal in conclusions, not opinions.

2017's Banana Skins Index

Jun. 22, 2017

The CSFI (Centre for the Study of Financial Innovation), aided and abetted by PwC, has been publishing the Banana Skins Index (BSI) on odd years since 2007. The 2017 issue has just been released. The BSI is an in-depth survey of emerging challenges in risk finance conducted with an array of carriers and brokers in 52 countries. While the BSI focuses on the anxieties of the insurance industry, this should be seen as a pretty decent index to problems bedeviling their risk manager clients as well.

The full worry list can be reviewed following the link provided above, but here are a few highlights:

  • Change management is at the head of a cluster of operating risks which have jumped to the top of the rankings because of rapidly emerging technologies which could transform insurance markets, such as driverless cars, the 'internet of things', and artificial intelligence. Change management ripples up and down the risk column. How are you handling it?
  • Cyber risk follows close behind, with anxiety rising about attacks on insurers themselves as well as the costs of underwriting cyber-crime for clients. Do you know what would happen if one or more of your carriers (not you - them) were hit by a cyber attack? Have you and your carriers worked out contingency plans for this?
  • The report shows that the industry's ability to attract and retain human talent is a fast-rising concern, particularly the talent needed to handle the digital challenge. Have you discussed this with your risk partners, planned for its impact on your own risk management staffing and succession?

Overviews like the BSI are good tools to think with as we push further into the 21st Century. We don't know for certain what tomorrow will look like, but it's a good bet that it won't look like yesterday.

Is Big Brother Watching (Your Drivers)?

Two recent articles point up some of the major changes in fleet management in the early 21st Century. Our first exhibit comes from the Work Safe blog and Texas Mutual via Workerscompensation.com. In this compact post, Texas Mutual described the measures they are taking to prevent distracted driving by their own employees. In their words," at Texas Mutual, we're putting the brakes on distracted driving by changing our culture."

The big change is a simple one - turn your smartphone OFF when you're driving. Let everyone know that you don't take or return calls or texts or emails while you're on the road. Managers know that as well and don't expect their people to call or reply unless they are parked in a safe place or, better, not in their car. Employees know to cue up GPS or a podcast or a music station before they get on the road. Pretty simple rules, right? So why aren't you doing the same thing?

Meanwhile, a recent news analysis item looked critically at how insurance carriers and others are reshaping critical aspects of fleet operations in reaction to the growing losses in commercial auto liability. In recent years claim costs have totaled nearly $112 for every $100 of premium carriers collected, according to researchers at the investment-management firm Conning Inc. Underwriters have stepped up demands for more comprehensive and sometimes downright invasive risk management changes in how fleets operate. "As a result, a wide range of commercial operators are installing cameras in the cabs of their vehicles, and cellphone applications to block use while a vehicle is in motion."

Of course, there's a further complication. Experienced big rig drivers are retiring in droves. One recent study (2014) by the American Trucking Association projects a shortage of about 48,000 qualified drivers this year. Why is that important? More novice drivers behind the wheel of more big trucks, that's why, making fleet operations that much more open to certain types of driver error risks.

While some drivers and others object to this type of "big brother" technology, the risk finance imperatives are clear and largely inescapable. Security cameras and other devices such as accelerometers in private cars have become part of the fabric of life today. The combination of risk engineering and new technology is driving (pun intended) changes across fleet management as well as all aspects of loss management. These new technological solutions are getting results. Was George Orwell the first modern risk manager?

In the Dark About Cyber Risk and Business Interruption?

Just under 50% of new single family residences built in 2009 did not have a fireplace. That's the most recent count from the Census Bureau. The rate is probably well over 50% by now. Why should you care? Well, think about this item: In December 2015 (note the month) hackers shut down power for thousands of Ukrainian electricity customers for six hours in an attack that compromised three power plants. Meanwhile, back at home, the Department of Homeland Security received reports of 59 cyber-incidents at energy facilities last year, up nearly a third from the year before.

Indeed, the Washinton Post reports that the Russian power station malware, dubbed CrashOverride, is ready to be deployed against others, the US included. Cyber hacking research reports refer to the Russian group developing these new weapons as Sandworm. Sounds like outtakes from a spy thriller, but it's all utterly, coldly real.

Could it be that we 21st Century Americans take our power supply a little too much for granted? A recent article in the Houston Chronicle looks at the growing risks of serious hacker caused power outages. The message for risk managers can be summed up in one line from Gerry Cauley, president of the North American Electric Reliability Corp., in recent testimony to the US Senate: "The potential for a major cyberattack against the nation's power system is at an all-time high."

Indeed, one of the top priorities of the Energy Department in 2017 is to develop what they call an ecosystem of resilience that can handle expected attacks on the grid and other components of the US energy system. This might be a hint. Have you reviewed and upgraded your business interruption protection recently? What happens financially if the power goes out at one of your major locations - and stays out for a day, two days, three days? What might that cost and are you appropriately protected against that risk? The power grid is vulnerable but that doesn't mean that you have to be vulnerable as well.

If the power's out one February day and you don't have a fireplace at home, you're left in the cold. If you don't have a well written business interruption policy (and a contingency plan tied to that policy), you're in an even worse place.

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