A Risk Manager in an Insurance World: Odd Man Out

Reprinted with Permission from The John Liner Review Winter 2007

Commentary

Insurance professionals learn about risk management — but not, apparently, about what a risk manager actually does. The need for education goes both ways.

A Risk Manager in an Insurance World: Odd Man Out

Rick Vassar

It’s always the same old story.

I go to a party, family gathering, church — it really doesn’t mat-ter. Eventually, someone will ask me what I do for a living. I tell them I’m a risk manager, and it’s always the same follow-up: “What does a risk manager do?”

There was a time when I would spin into the old Risk Management 101 song and dance, filling their heads with probability versus possibility, losses contingent upon this and that, subrogation stuff, until their eyes glazed over and they stumbled away dazed and confused, avoiding me like a plague, not only that evening, but forever.
Now, I give them the short answer: “I purchase insurance for my company.”

“Oh, so you’re like a broker.”

“No, a broker sells insurance; I buy insurance.” I remember using this explanation on a brother-in-law about 20 years ago. Whenever I’m with him and I meet someone new, he introduces me as “This is Rick; he sells insurance.” So much for communicating what a risk manager does in a social setting.

Stranger in a Strange Land
In an insurance setting, I would expect a better understanding of what I do. So imagine my surprise when I attended the Chartered Prop-erty Casualty Underwriter (CPCU) Society national meeting a few months ago. Here I was, amongst the greatest minds in the insurance industry, celebrating the fact that I had achieved the most presti-gious insurance designation in the property-casualty side of the business.
Then it happened, early and often — “So, what do you do?”

Actually, the first question was always, “Who do you work for?” since it was assumed that you work in the insurance industry. It didn’t matter what you do — the question was, “Who do you work for?” I heard responses such as “North American Life,” “Aon,” “Marsh Mac,” “AIG,” and “Zurich.”

“So, Rick, who do you work for?”

“I work for Valcourt Building Services.”
“What is Valcourt Building Services?”

“Why, it’s the premier building services company in the United States.”
“Seriously, who are you with?”

“That’s who I work for. I am a risk manager.”

“Really? What’s a risk manager?”

“I’m your customer!”

Slight pause.

“Of course you are.”

Pulling Back the Curtain
As implausible as this may sound, this is exactly how it seemed conversations went at this convention. It was like I was invited into this club, and the members were looking around to figure out who in-vited HIM. It wasn’t lack of courtesy; these folks couldn’t have been any nicer. I just got the feeling that they really didn’t know what to think of me, and they certainly didn’t know what to do with me.

I showed up at a meeting of a national committee that I had some interest in joining. Everyone was very warm and receptive until the meeting started, when one of the first questions asked of me was how I ended up on this committee. (How did HE end up here?)

It was pointed out to me time and time again that the president of the CPCU Society was a risk manager. I didn’t have the heart or the energy to tell them that she was a risk management consultant, not a risk manager, because they just wouldn’t understand the difference.

A Side Trip to Oz
Maybe it was because the lack of understanding of the risk manag-er’s function was so unexpected or maybe it was because it wasn’t so unexpected, but for the first time in my life, I truly felt as Doro-thy must have felt when she landed in Oz.

The Risk Manager as Dorothy
You see, I never started out to be a risk manager. Twenty years ago, no one knew what a risk manager was. I was a regional operations manager who kept asking for more to do, until one day they put me in charge of claims. I stayed with that organization for 15 years, be-coming a director of risk management and learning as I went along. And, “in the land of the blind, the one-eyed man is king.” I knew just a little bit more than anyone else in the organization about risk management, so I looked like a genius.

I supplemented my experience with education, receiving the Associate in Risk Management (ARM) in 1996 and the aforementioned CPCU in 2005. I also received the Associate in Insurance Services (AIS) and Associate in Risk Management for Public Entities (ARM-P) in 2005 as well.

What I didn’t know until I passed all these courses is that, of the 27,000 CPCUs in the world, less than 2 percent are risk managers and less than 1 percent work outside the insurance industry. The fact that I have never worked in the insurance industry makes me even more of an anomaly — an insurance customer who has always been a customer!

So, just like Dorothy, I was thrust into a world that I did not un-derstand, and it was fraught with danger. I charted a path, arming myself with allies who were often as clueless as I, and we set out to find the wizard, which in this case was the insurance industry, and the explanation of how it all worked.

Dorothy’s Adventures in Oz
When I received my CPCU designation, it was as if I had made it to the great hall of the wizard, and I was allowed to take a peek behind the curtain, where I was shown how it all works. I was invited to stay, but I decided to return to Kansas and report on what I had seen. The book I wrote as a result of my foray into the Oz of insur-ance chronicles my experiences in an effort to make the road easier for other risk managers who choose to make the journey and for those organizations that want to know more about what the journey entails.

Meanwhile, Back at the CPCU Meeting …
The one part of the meeting that made me most uneasy was when this committee started to try to figure out how to increase membership, not only for this section, but also for the CPCU Society as a whole. The committee decided to look into how RIMS (Risk and Insurance Man-agement Society) has steadily increased its membership and assigned people to look into RIMS’ marketing techniques. Since I wasn’t sup-posed to be there, I didn’t tell them what I thought was obvious:

“Stop Treating Your Customers Like They Are Outsiders!”

The Educated Insurance Customer
Clearly, there is a need for the insurance industry to understand the role of the risk manager in the insurance process. Then, risk managers won’t feel like outsiders at professional insurance gather-ings. But education goes both ways — the risk manager needs to know the intricacies of the insurance industry, too.

Risk Managers Are Essential to the Insurance Process
The easiest way to get involvement from the risk management commu-nity is to recognize risk managers for what they are: an essential component of the insurance process. Far be it for me to point this out, but without an insured, there is no insurance process. There is no need for a provider if there is no customer.

But the antiquated thinking prevalent in the insurance industry seems to indicate that the less the insured knows, the more insurers can sell. The more insureds buy, the more money the industry makes. This makes absolutely no sense. The insurance industry needs to real-ize that an informed consumer makes the best customer.

If a representative of an insured (the risk manager) is given an education on risk financing, risk control, and managing his or her organization’s insurance program, the insured will see the need for insurance because the risk manager understands the process. Educating the consumer doesn’t mean lower commissions because of lower pre-miums; it means being able to insure better risks, which will allow the insurer to go out and secure more good risks, strengthening and expanding its overall book of business.

Risk Managers Are Professionals
The reason more risk managers don’t pursue the CPCU designation is because they are often not considered to be insurance professionals by the insurance industry, especially if they do not have insurance industry experience. Yet, most risk managers come from the purchasing side of the insurance equation and are usually appointed from within an emerging organization to fill a need. The more professionalism they can bring to the job, the better. Doing their job almost always involves purchasing insurance, and education aimed at insurance pro-fessionals is vital to performing their job effectively.

I was in operations and had risk management thrust upon me, and, over time, it became a career. I truly believe that those of us who have an understanding of business first and then learn the insurance side are just as effective, if not more effective, as those who come out of the insurance industry and become risk managers, because we understand that in the minds of owners, executives, and operators, production is king, and the trick is to fulfill the objectives of a good risk management program within the constraints of the production mentality. The insurance industry can benefit from our expertise.

Risk Managers Understand Risk
By its very definition, business is a risk-taking enterprise. The key for the risk manager is to determine the tolerance for risk with-in the organization and work within that established box while striv-ing to improve upon the existing controls by proving that they are working. This allows for improvement and insures against a regression that could dissolve into intolerable uncertainty.

An owner asked me once why I thought his company was losing money. Without hesitation, I told him that I thought it was the company’s “production at all cost” mentality. Of course, he told me that with-out production, there would be no company. I agreed, but pointed out that I was not worried about the production. It was “at all cost” that concerned me. If your organization’s solution to problems is just to throw money at them in order to make more money, that atti-tude will catch up with you, probably sooner than later.

A Win/Win/Win Situation …
So, why is it a win for the insurance industry to have an educated insured?
… for the Insurer …An insured that knows how the insurance process works will see the value of lowering the frequency and severity of losses and will take active steps to lower its losses and reduce its premiums. While pre-miums become lower, so do combined ratios, which will increase profits. The customer will become more loyal both to the broker and to the insurer when the insured sees that its association with both has consistently lowered its costs and increased its profits. From a transactional standpoint, the need to move the insured’s program will become a nonissue if the insured knows it is getting a good deal.

… and for the Insured …The Associate in Risk Management (ARM) designation gives the desig-nee the understanding he or she needs to be an educated insurance consumer. I would advocate that all risk managers pursue the ARM de-signation. An educated consumer makes the most efficient choices when dealing with insurers and brokers.

… and for the Risk Manager Who Has Earned the CPCU Designation
I would strongly advise all risk managers to pursue the CPCU desig-nation, and I would also encourage their companies to advocate this training for their risk managers. The reason I never pursued the de-signation earlier in my career was twofold.

1. I thought it was too hard.
2. I didn’t see the value to my position as a risk manager.

I passed all the courses in 176 days — not bad for a risk manager. I am asked time and again how I was able to do this so quickly, and the only honest reply I can give is this: “It’s what I do.”

The value of the CPCU designation is this: instant credibility in my dealings with the insurance industry. When I send an e-mail or correspondence, I am afforded the respect that comes with attaining this level of excellence. It is assumed that I am an insider, and my job is made much easier with the CPCU next to my name. Insurance in-dustry people just assume I know what I’m talking about.

So, you have instant credibility for the risk manager, lower premium for the insured, and increased profits for the insurer, just by letting the insured take a peek behind the curtain. Sounds like a win/win/win situation to me.

Conclusion
In business, insurance has always been the 800-pound gorilla in the room. It’s always there, and it’s not going anywhere. Hardly anyone in business really understands it, and most don’t want to commit the time to learn. The only way to maximize your organization’s potential is to manage your risk and your insurance, and you can do this effec-tively only by learning the product and services and how to effec-tively manage them.

In this day and age of information technology as well as increased competition, it is imperative that insurance costs are managed. If you are informed, you may no longer have to accept the “hard market” as the only excuse for increased premium, and you will certainly be able to easily tap into the market, should you be given that excuse by your insurer.

There is a bit of mistrust between the insured and insurer, and the only real way to bridge this gap of trust is for each side to have a better understanding of the process and its role in the process. Sav-ings will go up and so will profit, and that’s all we are really looking for.

Bring the risk managers in.

We’re not in Kansas anymore.

Rick Vassar, CPCU, ARM, AIS, ARM-P, is the principal in The Vassar Group, LLC Risk Management Consultants as well as Vice President of Risk Management for Valcourt Building Services, LLC, both located in Virginia. Vassar has over 20 years experience in risk management and has written on various risk management topics. Vassar could never find a primer on business insurance for the business person, so he wrote it. Hide! Here Comes the Insurance Guy — A Practical Guide to Understanding Business Insurance and Risk Management (iUniverse Press 2006) was published in June 2006.


Reprinted with Permission - The John Liner Review Winter 2007 Standard Publishing