In the fall of 1986, I was managing a small suburban car rental office outside of Washington, DC. Around that time, my boss came by and offered me another position as district operations manager, an opportunity I immediately accepted. There was a catch, though. I had to take over the management of claims.
No way, I thought. Who would want to do such a thankless job? But since the other position was tied to the claims job, I reluctantly accepted.
Over the next five years, the company grew by over 300%, and I became the Director of Risk Management in April 1989, a position I held until January 2002. Along the way, I received the Associate in Risk Management (ARM) designation (1996), which provided the educational foundation for this profession that I had not chosen, but had chosen me.
To be completely honest, I would probably still be at that job if not for the events which unfolded after the terrorist attacks on September 11, 2001. Due to a variety of circumstances, the company filed for Chapter 11 bankruptcy less than three months after the attacks. I decided it was time for a change. At 43 years old, this risk manager thing wasn’t going anywhere.
So I took a job selling cars, and supplemented this doing some risk management consulting. The problem with car sales is that it is not very family friendly, and with two small girls at home and a wife with a chronic illness, I decided to quit car sales and go home and take care of my family. I figured I’d just go get another risk manager’s job. Very few companies, though, were willing to take a chance on a risk manager with experience in only one industry. There was also this recession thing going on.
After about six months of doing odd jobs, substitute teaching, and some consulting, I went back to car sales, since we needed the job for the health insurance. I continued to look, and in May, 2003, I was offered a position at Valcourt Building Services. This company had been growing very rapidly, and had decided to commit resources to their insurance program in the hope of controlling their costs.
In a little over 18 months, I was able to facilitate significant savings in insurance. I also assisted in the implementation of a comprehensive safety program that complemented the insurance program and led to more savings.
This is where the CPCU journey begins.
In January 2005, during my review process, I asked permission to apply for a broker’s license, since the company had thoughts of purchasing an insurance agency. Since their plans had changed, and a broker’s license would be of little value to the company, my boss asked if there was anything else I would be interested in studying.
It was then that I mentioned the CPCU, and I explained that it was a series of eight courses, and generally takes two to five years to complete. He told me to go ahead and get started.
Well, I passed the first test on February 28, 2005, and I guess I got on a little bit of a roll, because I passed the eighth and final test on August 22, 2005. This was a total of 176 days from start to finish, or an average of one part every 22 days. I received my designation letter on September 6, 2005.
I also had a little trouble decompressing from this furious pace, so I also passed the Associate in Insurance Services (AIS) and the Associate in Risk Management for Public Entities (ARM-P) programs before the end of 2005. During this time, I also wrote four articles for publication in RM Magazine, the premier publication in the risk management discipline. A fifth article was published in June 2006.
I have also written a book Hide! Here Come The Insurance Guy™ A Practical Guide to Understanding Business Insurance and Risk Management. The book is written from the viewpoint of the business insurance consumer, and offers practical strategies and practices that serve to educate those who want to reduce the cost of their insurance programs. The book was published in June 2006 and has been overwhelmingly well received.
According to the CPCU Society statistics, only 2% of its membership are risk managers, 1.7% characterize their job function as “Risk Management/Buyer” and only 0.5% work in non-insurance industry related organizations. Achieving the CPCU designation affords me a unique perspective on the insurance industry; a credentialed insurance professional who does not work in the insurance industry.
To this end, I have also started my own risk management consulting practice. The Vassar Group, LLC, is being launched in conjunction with the publication of the book. For every credentialed risk manager out there in business, there are probably nine or ten professionals like me, who came into the discipline quite by accident. The book as well as the business will help them to fill in the gaps, providing practical, cost-effective solutions to their risk management and insurance needs.
Achieving the CPCU has given me the confidence to pursue these other avenues. I have also found that adding this designation has served as an introduction to contacts I would not has access to but for the CPCU. The attainment of the CPCU designation commands instant respect among those in the insurance industry.
Attaining the CPCU designation also gave me the unique perspective of how the insurance industry operates. As a risk manager, one must effectively communicate to those in both the back room and the boardroom. Seeking support for a program at the executive level and then communicating the program to the rest of the organization once consensus is reached can be a daunting task to the risk management professional. The respect that the CPCU affords me in both the corporate and insurance arenas has given me the additional strength necessary to complement and enhance our already successful risk and insurance programs.
I want to encourage everyone in the industry, both on the buying side and the production side, to pursue the CPCU designation. For those of you who are thinking about it, get yourself started. I think you will be pleasantly surprised at how approachable most of the subject matter is to the insurance professional. For those of you in the middle of your studies, take heart. You will do it, and it will be well worth it.
People ask me how I could possibly pass these courses in six months, especially those who know that I have never been much of a student. There is only one plausible answer I can give them:
It’s what I do.
Four years ago I was selling cars. My career path was unsettled at best. Now, with the help of the CPCU designation, I am truly excited about what the future holds for me. It has given me the education and the confidence to pursue a new path and the field is now wide open.
Tort Reform - If You Really Want It, Take Shakespeare's Advice
Tort reform is a hot issue these days. It was a hot issue yesterday, and it will be a hot issue tomorrow. It seems to have manifested itself in the medical malpractice area, but could probably use some restraints in all areas of tort liability.
That will never happen. The most basic reason for this is that the special interests groups are trying to get the federal government to mandate controls on tort liability. But insurance is controlled by the states.
This issue has been batted around for over 100 years, and always ends up back in the hands of the states, for better or for worse:
In 1869, in Paul v. Virginia, the U.S. Supreme Court ruled that insurance was not interstate commerce and therefore was not subject to federal regulation.
In 1890, the Sherman Antitrust Act forbade insurance companies from banding together and colluding to fix prices. This act is still in effect today.
In 1944, the South-Eastern Underwriters Association (SEUA) decision effectively gave the right to regulate insurance to the federal government after it rendered the decision that the SEUA had conspired to control 90 percent of the insurance business in six states.
Congress passed the McCarran-Ferguson Act in 1945, which restored state regulation of insurance less than one year after the SEUA decision.
It’s fairly obvious that insurance regulation is going to continue to be controlled by the states, and this right has been fiercely protected throughout U.S. history. So, although you will find pockets of state legislation that restrict the awards in tort liability cases, this issue will never get up enough steam to become a federal mandate and will probably be struck down as unconstitutional in deference to states’ rights.
This is not the primary reason, though. The real underlying reason is …
Lawyers!
It’s so obvious, isn’t it? A lawyer sues another party because of their negligence. What does the other party do? They hire a lawyer. Either the other party or its insurance carrier needs legal representation to represent its interests in this action. If the complaining party settles or wins the case, the plaintiff attorney profits. If the defendant wins or loses, the attorney for the defense profits.
If tort reform is passed, who stands to lose the most?
Lawyers!
And most of the folks in Congress, before they became representatives, were …
Lawyers!
Enough said. If all the lawyers are against tort reform, and it would be struck down even were it enacted, it will never happen.
From Hide! Here Comes the Insurance Guy Copyright 2006 Richard G. Vassar All Rights Reserved
That will never happen. The most basic reason for this is that the special interests groups are trying to get the federal government to mandate controls on tort liability. But insurance is controlled by the states.
This issue has been batted around for over 100 years, and always ends up back in the hands of the states, for better or for worse:
In 1869, in Paul v. Virginia, the U.S. Supreme Court ruled that insurance was not interstate commerce and therefore was not subject to federal regulation.
In 1890, the Sherman Antitrust Act forbade insurance companies from banding together and colluding to fix prices. This act is still in effect today.
In 1944, the South-Eastern Underwriters Association (SEUA) decision effectively gave the right to regulate insurance to the federal government after it rendered the decision that the SEUA had conspired to control 90 percent of the insurance business in six states.
Congress passed the McCarran-Ferguson Act in 1945, which restored state regulation of insurance less than one year after the SEUA decision.
It’s fairly obvious that insurance regulation is going to continue to be controlled by the states, and this right has been fiercely protected throughout U.S. history. So, although you will find pockets of state legislation that restrict the awards in tort liability cases, this issue will never get up enough steam to become a federal mandate and will probably be struck down as unconstitutional in deference to states’ rights.
This is not the primary reason, though. The real underlying reason is …
Lawyers!
It’s so obvious, isn’t it? A lawyer sues another party because of their negligence. What does the other party do? They hire a lawyer. Either the other party or its insurance carrier needs legal representation to represent its interests in this action. If the complaining party settles or wins the case, the plaintiff attorney profits. If the defendant wins or loses, the attorney for the defense profits.
If tort reform is passed, who stands to lose the most?
Lawyers!
And most of the folks in Congress, before they became representatives, were …
Lawyers!
Enough said. If all the lawyers are against tort reform, and it would be struck down even were it enacted, it will never happen.
From Hide! Here Comes the Insurance Guy Copyright 2006 Richard G. Vassar All Rights Reserved
To Settle or Not to Settle
When I was in car rental risk management, if I saw one of our cars on the six o’clock news, I knew I needed to get intimately acquainted with that file, because we were to become constant companions for a long, long time. So when I saw the Vioxx wrongful death decision on every news channel recently, I was quietly happy that I do not work there.
This case accentuates a philosophy that we in the risk management profession know can become a harbinger of bad things to come—when someone in upper management says those five dirty words: “Let the lawyers handle it.”
Now, I have nothing against lawyers. Well, most lawyers. Okay, a couple of lawyers. Seriously, though, legal representation is essential in our area because of the very nature of torts. That is not the issue. The issue is whether or not counsel should have the ability to dictate the strategy and direction of a claim, and whether that direction is in the best interest of the organization.
First and foremost, I have never been comfortable with putting my organization’s financial future in the hands of twelve people who are not smart enough to get out of jury duty. The Vioxx case exemplifies exactly why the executive branch must weigh the concerns of risk management more heavily than the concerns of the legal team. The legal team’s place is to execute the will of the organization to determine the best possible economic outcome from the mess that has been made. The company holds the map, the lawyers drive the car.
Just for the heck of it, let’s look at the numbers on this thing. Merck has reserves on this of $675 million. Let’s just say that Merck decided to settle these claims. First, you should remember that 4,200 people did not die. Although the plaintiff attorney stated over and over that this was never about the money, as I have so liberally stated in the past, it is always about the money. In a death case, it is the only remedy. There is an economic value to a 63-year-old man, and eventually you are going to hit the plaintiffs number. I would say that number would be about $2 million. If Merck decided to aggressively settle these cases, you could safely say that its legal fees would amount to about $25 million.
Conservatively assuming that 25% of these cases go away for nuisance value, it would leave about $200,000 per case to settle. If a wrongful death case is worth $2 million, $200,000 per claim should be plenty to settle out.
This case in Texas will probably cost Merck $20 million, and conservatively about $3 million to litigate. There are 4,200 other cases out there which will grow to over 10,000 cases because of the publicity in this case. Kenneth C. Frazier, Merck’s senior VP and general counsel, was quoted as saying “There are other Vioxx cases coming to trial and we will vigorously defend them one by over the coming years.” Litigation costs will conservatively top $100 million, leaving about $550 million to settle. Using the same 25% in nuisance cases, this leaves a little less than $75,000 per case.
Settling leaves about 167% more per claim to pay out. Litigating increases legal fees by over 400%. If you use all of the $200,000 per case for this scenario, total paid losses would amount to about $1.5 billion plus the $100 million for legal fees. I rest my case.
I have two very simple standards when it comes to the direction of a claim and whether to litigate or settle. One, if I like their case better than mine I settle, period. Second, if the cost of litigation could exceed the total amount for which the claim can be settled, I am inclined to settle.
Even if I know the plaintiff is not entitled. Even if I know that “we can win this thing.” I would rather pay someone who may not really be entitled to a settlement than to let twelve people I don’t know make that decision for me.
Again, let me state that I have the greatest respect for attorneys. An organization needs to understand that claims management is economic, and upper management must be involved in the decision making process, since their allegiance is to their company, while attorneys and outside vendors have primary interests which may be secondary to the company.
Rick Vassar, CPCU, ARM, is the corporate risk manager for Valcourt Building Services located in Arlington, Virginia. Seriously, some of his best friends are lawyers.
Reprinted with permission from Risk Management Magazine.Copyright Risk and Insurance Management Society, Inc. All rights reserved.
Risk and Insurance Management Society (RIMS) · 1065 Avenue of the Americas · 13th Floor · New York, NY 10018 ·
This case accentuates a philosophy that we in the risk management profession know can become a harbinger of bad things to come—when someone in upper management says those five dirty words: “Let the lawyers handle it.”
Now, I have nothing against lawyers. Well, most lawyers. Okay, a couple of lawyers. Seriously, though, legal representation is essential in our area because of the very nature of torts. That is not the issue. The issue is whether or not counsel should have the ability to dictate the strategy and direction of a claim, and whether that direction is in the best interest of the organization.
First and foremost, I have never been comfortable with putting my organization’s financial future in the hands of twelve people who are not smart enough to get out of jury duty. The Vioxx case exemplifies exactly why the executive branch must weigh the concerns of risk management more heavily than the concerns of the legal team. The legal team’s place is to execute the will of the organization to determine the best possible economic outcome from the mess that has been made. The company holds the map, the lawyers drive the car.
Just for the heck of it, let’s look at the numbers on this thing. Merck has reserves on this of $675 million. Let’s just say that Merck decided to settle these claims. First, you should remember that 4,200 people did not die. Although the plaintiff attorney stated over and over that this was never about the money, as I have so liberally stated in the past, it is always about the money. In a death case, it is the only remedy. There is an economic value to a 63-year-old man, and eventually you are going to hit the plaintiffs number. I would say that number would be about $2 million. If Merck decided to aggressively settle these cases, you could safely say that its legal fees would amount to about $25 million.
Conservatively assuming that 25% of these cases go away for nuisance value, it would leave about $200,000 per case to settle. If a wrongful death case is worth $2 million, $200,000 per claim should be plenty to settle out.
This case in Texas will probably cost Merck $20 million, and conservatively about $3 million to litigate. There are 4,200 other cases out there which will grow to over 10,000 cases because of the publicity in this case. Kenneth C. Frazier, Merck’s senior VP and general counsel, was quoted as saying “There are other Vioxx cases coming to trial and we will vigorously defend them one by over the coming years.” Litigation costs will conservatively top $100 million, leaving about $550 million to settle. Using the same 25% in nuisance cases, this leaves a little less than $75,000 per case.
Settling leaves about 167% more per claim to pay out. Litigating increases legal fees by over 400%. If you use all of the $200,000 per case for this scenario, total paid losses would amount to about $1.5 billion plus the $100 million for legal fees. I rest my case.
I have two very simple standards when it comes to the direction of a claim and whether to litigate or settle. One, if I like their case better than mine I settle, period. Second, if the cost of litigation could exceed the total amount for which the claim can be settled, I am inclined to settle.
Even if I know the plaintiff is not entitled. Even if I know that “we can win this thing.” I would rather pay someone who may not really be entitled to a settlement than to let twelve people I don’t know make that decision for me.
Again, let me state that I have the greatest respect for attorneys. An organization needs to understand that claims management is economic, and upper management must be involved in the decision making process, since their allegiance is to their company, while attorneys and outside vendors have primary interests which may be secondary to the company.
Rick Vassar, CPCU, ARM, is the corporate risk manager for Valcourt Building Services located in Arlington, Virginia. Seriously, some of his best friends are lawyers.
Reprinted with permission from Risk Management Magazine.Copyright Risk and Insurance Management Society, Inc. All rights reserved.
Risk and Insurance Management Society (RIMS) · 1065 Avenue of the Americas · 13th Floor · New York, NY 10018 ·
Hide! Here Comes the Insurance Guy - Numbing the Pain
Check out the intro to the book. Informative yet humorous... Who knew!!?
It's like Novocaine before getting root canal - it makes the whole process a little less painful. Enjoy!
The first thing people ask me about this book is: “Why a book on insurance? And business insurance, to boot?”
To me, this question really means: “You’re kidding, right?”
In fact, when I initially pitched this idea to the publisher, I was met with an uncomfortable silence on the other end of the line. Fortunately, being in the insurance end of business, I’m pretty accustomed to stunned silence.
After about five seconds of this, I gave it my best marketing effort:
“Sounds kind of like death, doesn’t it?”
The reason for this book is simple. There are too few insurance professionals who work outside of the insurance industry. The insurance industry is a wonderful career choice for those who pursue it and stay with it. Most who go into this line of business stay in the business until they retire—or die.
I am an anomaly in the insurance industry. I have spent my entire career in business and not in insurance. I am not a purveyor of insurance; I am a consumer of insurance.
I am a risk manager.
A risk manager determines the financing needs of an organization, provides coverage for the company, and works the insurance program on behalf of his or her employer.
I am a buyer, not a seller. I look out for the needs of the commercial consumer, and I have no ties to the insurance industry other than as a consumer. At no time have I ever worked in the supply side of insurance.
On the other hand, the insurance industry has certified me as an expert in the property casualty field, conferring on me four professional insurance designations (certifications) including the Chartered Property Casualty Underwriter (CPCU), which is considered the gold standard in the property/casualty insurance industry.
I am not saying this to toot my own horn but to point out that I have always represented the interests of the business consumer, whether a sole proprietorship or a Fortune 100 company.
Yet there are precious few of us who have remained untouched by the supply end of the insurance food chain. Most, if not all, of the information that is communicated concerning business insurance is generated by the insurance industry itself.
Don't Fear the Reaper - State Farm and the Lessons of Katrina
Don't Fear the Reaper--this is the name of a song by Blue Oyster Cult. This group's songs had very few lyrics, and this song exemplifies why. It really makes little sense except for those whose thoughts have been somehow chemically altered.
I hate that song.
When the winds started to blow from Katrina, I was watching on TV. As we watched the winds blow homes and buildings off their foundations, I told my wife that most of the claims would be denied. The reason: most dwellings are covered for wind damage but not flood damage. If there is a combination, some insurers would choose to deny if any water hits an insured dwelling.
The same thing happened after the 9/11 attacks with life insurance. Some insurers called the attacks an "act of war" and therefore not covered.
State Farm got tagged this week trying to pull this wind/flood combination. But this is a cautionary tale for everyone who owns anything - a home, a business, a car...
Read your policy!! If you live in a flood zone, buy flood insurance. If you live in a hurricane or tornado area, make sure there is no doubt that you will be covered before it happens.
I had a hailstorm hit my neighborhood a few years back. All the homes were covered except those insured by my company. The insurance company told us that hail had hit our house, and that we had hail damage, but the hail that hit our house wasn't the hail that caused the damage. They said it must have been the hail storm that occurred about two years, which of course was outside the reporting time for any claim, and therefore not covered.
We fought and fought and fought them. In a fortuitous turn of events, though, just as we were about to take them to court, another storm came through and left no doubt as to the damage incurred.
If you can't afford to lose something, make sure you know what's certain and what isn't certain.
If not, you will have to let the insurance company decide.
Oh yeah, my insurance company only paid for half of the roof!!
"We can be like they are (don't fear the reaper)..."
I hate that song.
When the winds started to blow from Katrina, I was watching on TV. As we watched the winds blow homes and buildings off their foundations, I told my wife that most of the claims would be denied. The reason: most dwellings are covered for wind damage but not flood damage. If there is a combination, some insurers would choose to deny if any water hits an insured dwelling.
The same thing happened after the 9/11 attacks with life insurance. Some insurers called the attacks an "act of war" and therefore not covered.
State Farm got tagged this week trying to pull this wind/flood combination. But this is a cautionary tale for everyone who owns anything - a home, a business, a car...
Read your policy!! If you live in a flood zone, buy flood insurance. If you live in a hurricane or tornado area, make sure there is no doubt that you will be covered before it happens.
I had a hailstorm hit my neighborhood a few years back. All the homes were covered except those insured by my company. The insurance company told us that hail had hit our house, and that we had hail damage, but the hail that hit our house wasn't the hail that caused the damage. They said it must have been the hail storm that occurred about two years, which of course was outside the reporting time for any claim, and therefore not covered.
We fought and fought and fought them. In a fortuitous turn of events, though, just as we were about to take them to court, another storm came through and left no doubt as to the damage incurred.
If you can't afford to lose something, make sure you know what's certain and what isn't certain.
If not, you will have to let the insurance company decide.
Oh yeah, my insurance company only paid for half of the roof!!
"We can be like they are (don't fear the reaper)..."
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