Helping Management Understand and Appreciate the Value of Risk Management

Excerpted from the June 14, 2007 RIMS New York RIMS Seminar - Helping Management Understand and Appreciate the Value of Risk Management...

First off, before I explain to you who I am, I want to tell you what I am not:

1. I am not the insurance ‘answer man’. I do not profess to know all things about insurance, so I will not be fielding questions about retrocessionaire reinsurance contracts or loss to premium ratios. Although I do know of such things, it is not my area of expertise.

2. I am not the insurance industry. Although I have worked alongside the insurance industry for over 20 years, I have never held a position in nor received any compensation from the insurance industry or related industry

I AM A RISK MANAGER.

I work on the business side of the table, and although I am associated by, well, the entire world as an insurance guy, I do not sell insurance.

Currently, I am the Vice President of Risk Management for Valcourt Building Services in Arlington, VA and I also have a risk management consulting firm – The Vassar Group, LLC located in Sterling, VA.

How many risk managers do we have here today?

Any brokers?

Brokers, for some reason, love me. Whenever a broker finds out I’m a risk manager, they seem to a person to hang on every word I say. Brokers like to take me out to ballgames, dinner, and for some reason, brokers seem to think I am the greatest thing to come along in years.

Okay, of all the risk managers here, did any of you when you were a kid dream of growing up and becoming anything other than a risk manager?

You remember- You’re sitting at your desk in kindergarten and the teacher asks you what you want to be when you grow up. One kid says doctor, the next astronaut, the next a mommy… and then it’s your turn and you say “risk manager”.

Never mind that no companies had risk managers back in 1963 when I was in kindergarten. I would get the same reaction in 2007 that I would have in 1963-

“What does a risk manager do?”

After about 30 seconds into the explanation, their eyes start to glaze over as I explain probability versus possibility, activities versus results, risk financing, etc. It really doesn’t matter what you tell them, they always come away with the same conclusion:

Rick sells insurance.

These days, I just tell people that I buy insurance and leave it at that. If they ask any follow up questions, they do so at their own peril.

I have a brother-in-law, and for the past 20 plus years, I have explained to him what I do for a living. He has read the book, the articles and he is a pretty intelligent guy.

Every time I see him, he introduces me as Rick Vassar – he sells insurance.

Is there anyone here who chose another career both other than risk management?

I think I can safely say that for most risk managers, they do not choose risk management as a profession – it chooses them.

I am going to make a bold statement right here and now. Although risk management seems to be a thankless ill-defined profession at times, to me it is one of the greatest jobs in the world.

If I forget to tell you why, remind me at the end.

For me, it happened way back in 1986. No cell phones, no Internet. MY company had a fax machine but no one else did, so there was no one to fax stuff to.

I was working for a small local car rental company running an even smaller suburban rental location. I had just come off a bad experience at one of the national car rental chains, and I was pretty burnt out.

In November of that year, my boss took me out to lunch and offered me a position of district manager. I would continue as office manager and oversee the operations at another three branches. The promotion included a $50 per week raise that about doubled my salary.

There a catch, he said. You also have to handle the claims for the company as well.

No way, I told him. I hate claims. I hate insurance. I will never do that job.

He offered me another $25 per week as well as a percentage of the subrogation claims I collected on.

When do I start?...

Less than a week later, I got a call from one of the branch managers that an employee had tapped a little old lady in a parking lot, and there was damage to her bumper. I got the report, called the lady. She sent me three estimates, the lower being $221.23. I put in a check request, typed up a release that I found in a file cabinet (using a typewriter and those little white-out strips). It was pretty ugly, but I figured it would do the trick.

A few days later, accounting called and told me the check was ready. I drove over to the accounting department, walked into the controller’s office. She lit up a cigarette, reached back in an accordion folder, and pulled out an envelope.

After she took another pull off of her cigarette (because we didn’t have cell phones, computers or fax machines back then, they let us smoke in the office), she uttered those seven words that would forever change my professional life:

‘You know we have insurance to cover this?’

“Really”

Yup, just turn it over to the insurance company and they will handle it.

“Really”

And that, ladies and gentlemen completed my training as a risk manager for almost ten years.

In the next three years, the company grew from an 800 car fleet and eight offices to a company with a fleet of over 2,000 vehicles and 25 offices. In April of 1989, I was named Director of Risk Management for the largest independently owned car rental franchise in the world.

Although I held this lofty title, I did little more than handle the claims side of the business, and my boss handled the renewals and policy end. In May of 1992, 30 days prior to renewal of the insurance program, it was announced that my boss was leaving the company, and that I would be assuming his duties on the policy end.

NOW I had a problem…

As long as I was just doing claims, I only had to know a little more than everyone else in the company.

It reminds me of the time Diane and I were cutting through Central Park one day a few years back.

It was a beautiful spring day, when out of nowhere, a big black bear came out of the woods and started to chase us. It turns out the bear had escaped from the Bronx Zoo and had hooked over to the Cross Bronx Expressway to West Street, unseen by anyone until it saw us.

Diane and I started to run as fast as we could when I looked over at her and said,

“Hey, Diane, we can’t outrun a black bear.”

“I don’t have to outrun the bear” she said; “I just have to outrun you.”

Well, that’s the way the past six years had gone – I knew a little more than anyone else in my organization, but now it was a whole different ballgame.

I was dealing with insurance industry folks and they figured out that I knew almost nothing about insurance and risk management in about… oh 30 seconds.

I got through the renewal and a friend sent me a little book called Insurance in a Nutshell. Unfortunately, it was written in a language I did not understand- the language of insurance, and I was incapable at that time of cracking the code.

So I continued along, learning what I could when I could, trying to stay one step ahead of everyone else.

In 1996, I took the ARM courses, completing all three and receiving my Associate in Risk Management designation in December. By this time the company had grown to a fleet of over 4,500 vehicles and 40 locations in a 250 mile radius around Washington, DC.

The ARM helped to fill in the blanks and gray areas of the insurance and risk management process.

In 2001, after 15 years with one this one company, which grew to a fleet of over 6,000 vehicles and 45 locations, the company filed for Chapter 11 reorganization due to the hit we took from the 911 attacks. Although it was a reorganization attempt, it was fairly obvious that the company would not survive.


In 2003, after a year and a half of unemployment and a series of other non-risk management jobs, I hooked up with Valcourt Building Services, where I am today.

This brings me to 2007 and the subject of Enterprise Risk Management.

There has been an increased emphasis these days on Enterprise Risk Management, which attempts to systematize risk management at all levels of an organization.

It is my feeling that, for risk management to be effective there has to be a top down commitment to risk management that flows through and incorporates the efforts of all levels of the company to be effective. ERM is another way of saying the same thing in a more formalized manner.

Now, I have been blessed to work in organizations that put a pretty high priority on safety and the prevention of accidents, injuries and illness. Still, in the business world, production is king, and often times, operations, sales and other interests in your organization can work against your best efforts to reduce your overall cost of risk.

As a risk manager, I hold no direct authority over anyone in my company, yet I am still tasked with the responsibility of lowering insurance costs and keeping them down.

If a risk manager is to be successful, he or she must be able to communicate with all levels of the organization in language they understand.

I call this speaking well in the boardroom and talking good in the backroom.

For example, if you are talking to the board or a group of executives, this is the time to wheel out all the bells and whistles, charts and graphs, five year plans, financial models, etc, etc, etc…

Most risk managers, though, answer to the CFO or Treasury officer, and it is most important to speak in their language if you want your message to be heard.

The language of the CFO is numbers.

Plain and simple.

I have found that it less important what the numbers are and more important that the numbers add up. If the numbers do not add up, there is no point in going on.


Stay away from conceptuals when dealing with the CFO unless you have numbers to back it up.

One time I told him that the problem that he thought horizontally and I thought vertically, since my spreadsheets went top to bottom and his went left to right.

You should’ve seen the look I got.

How about operations?

Well, if you try to give operations numbers and use insurance-speak to communicate, you will get shut down every time.

First of all, operations does not want to hear about strategies that they perceive will slow down the production process. Second, the only numbers that count in their world are production numbers. Your numbers are meaningless to them.

I try to communicate with operations management by speaking in terms of net versus gross, meaning not the amount of money they bring in, but the amount of money that stays once all the bills are paid.

When dealing with on line employees, it is important to emphasize safety and the need to keep the employee safe.

But don’t leave it with the greater good scenario. Employees know this is a business, so it is the risk manager’s job to convince employees that not only does safety make good economic sense, it also serves to protect the employee, and that can only be a good thing.

What about sales?

Most sale people I know and work know why our contracts call for certain amounts of coverage and contract language. They just don’t understand why THEIR customers need that coverage?

If you the risk manager are able to communicate the need to your sales team, they will in turn be able to communicate these needs to the customer, so there won’t be confusion or misunderstandings later, after the contract is signed.

And finally, the customer…

I used to umpire baseball at the high school and college level. If I was able to get through the whole game and not be noticed, I knew I did a good job.

It’s the same with you the risk manager. The company I work for does a lot of property management work in occupied buildings, and most companies have unique limit requirements and certificate language.

Some language is for lack of a better word, funky. If you call the customer, the person requesting the language is working off a checklist, and they have no idea why the requirements are what they are.

If you try to kick it upstairs, you will find that the supervisor doesn’t know why either.

The point is, it’s difficult to argue for limits or language with people who have no idea what the language means. It’s best to try to see if you can overcome the objective language or limits from your end.

If you can’t, see if you can determine what your organization can live with.

For example, the big coverage du jour a few years ago was waiver of subrogation. Someone put out an article in a trade magazine that property managers had to have this included in all their contracts. So it became a requirement.

In 2003, our company had waiver of subrogation added by endorsement on work comp on an as requested basis. The problem was that the insurance company did not know how to charge for it.

At renewal for 2004, we asked that waiver of subrogation be added on a blanket basis, thus giving it to everyone on an as needed basis.

Total cost $6,000 or less than 5 tenths of one percent of all premium; a small price to pay to make a big problem go away.

Bottom line, though, is that you need to know what you are talking about before you are able to communicate it well.

On January 12, 2005, my company gave me permission to pursue the CPCU designation.

At that time, I really didn’t know what CPCU stood for, although I knew that anyone worth their salt in the insurance industry has or is working towards a CPCU.

On February 28, 2005, I passed the first CPCU test.

On August 22, 2005, or 176 days later, I passed the eighth and final test.

I received my designee letter on September 6, 2005.

When I was in the middle of this whirlwind, I found out a bunch of things. First, less than 2% of CPCUs are risk managers and less than 1% work outside the insurance industry. Being a risk manager who has never worked in the insurance industry made me that much more unique.

I also went to find that book that I had looked for back in 1989 that explained business insurance and risk management in plain language, and I still couldn’t find it.

So I wrote it. Hide! Here Comes the Insurance Guy is a humorous plain speaking text for folks like me who had to learn on the fly. This book would have been invaluable to me if it were available back then.

It also serves as a great communication tool for risk management departments to show their organizations what they do in an approachable way.

Risk management written by a career risk manager. What a concept!!

I am a risk manager. I am one of you. I’m not a genius. People ask me how I could earn the CPCU designation so quickly.

I don’t know. The only explanation is – it’s what I do.

Have faith in what you know.

Continue to learn.

And learn to communicate what you know in a way that everyone can understand.

One day, instead of hearing ‘What does a risk manager do?’ you are going to hear,
“Wow, you’re a risk manager, that’s pretty cool’

And it is…