To inspire risk management thoughts and ideas to all readers as we take the plunge to reach out to users, for the first time, we bring you a detailed coverage of RIMS annual conference, the biggest Risk Management event of the year anywhere with some 400 exhibitors and more than 10,000 attendees from over 60 countries with 160 sessions over four days. It was more than all that jazz at the New Orleans show where topics ranged from drones to 3D printing to political risks.
A must read spread.
By Chia Wan Fen
“New Innovations, New Encounters, New Knowledge, New Orleans.” was the theme for RIMS ’15. The last one of those four elements proved to be a challenge, but after my fourth flight (Singapore – Hong Kong – San Francisco – Houston – New Orleans),
I arrived triumphant and all excited at New Orleans, as deep in the heart of the US as could be for an Asian, whose previous closest brush with the area was through vicarious armchair adventures with Huckleberry Finn along the Mississippi River.
New Orleans
This being the magazine’s inaugural editorial attendance, my aim was to get a “flavour” of the risk management community and the event. The first impression was the scale.
According to RIMS, there are fewer than 25 locations in North America for a conference this size. Walking from my hotel in the French Quarter to the convention centre, I was struck by the vibrancy of New Orleans, back on track after Hurricane Katrina of 2005. I also realised that the concept of distance in America differs from mine. So I became a proud supporter of the Swiss Re shuttle bus for the rest of the conference – and behold! I realised that the distance from one end of the convention centre to Marsh’s pavilion at the other was a journey in itself.
New encounters
I saw familiar faces on the first day – Singapore attendees from International SOS, which had sponsored the first-ever International Lounge at RIMS. I was happy to meet other foreign attendees from the likes of Latin America, Japan and even Micronesia.
I did not see many other Southeast Asia or MENA attendees though – RIMS President Rick Roberts has indicated his wish to expand the outreach of RIMS, and I look forward to greater participation from the risk community beyond the Americas and Europe. RIMS is as much about meeting people and creativity as it is about the content – I enjoyed the partying at the opening reception at Mardi Gras World and the networking sessions.
New knowledge
Everyone is a risk manager, goes the motto of our local risk association and the keynote speeches by graffiti artist Erik Wahl, motivational speaker Simon T Bailey and Huffington Post President Arianna Huffington showed just that.
The talks may not have been about the boardroom, but they were inspiring and potentially life-changing for us creatures of habit. They inspired attendees to rethink how one could approach challenges and rejig our habits to improve our lives and achieve success.
New innovations
A lot of the education sessions and discussions at the event were about disruptive technology, new innovations, the challenges of international business, and how risk managers and the carrier community need to come up with new strategies and products to cope with them. We bring you a snapshot of some of those concerns in this and the next issues.
For those among you in the risk management and carrier community who may already be tempted by RIMS – feel free to mark your diary for RIMS ’16, from 10-13 April in San Diego, California.
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RIMS to focus on strengthening networks
The Risk Management Society (RIMS) will place emphasis on strengthening its internal and external networks, said RIMS ‘15 President Rick Roberts, who opened the RIMS ‘15 annual exhibition and conference in New Orleans with RIMS Executive Director Mary Roth.
“We’ve already begun the process of strengthening RIMS global network by exploring new opportunities including enhancing our professional development offerings so that those around the globe can access them, participating in worldwide industry events to make new connections and gain a better understanding of the global risk perspective, and developing resources that address risk management strategies for global expansion,” said Mr Roberts.
He said strengthening networks would help risk managers in their careers and to prepare for uncertain times. On the international front, Mr Roberts highlighted his intention to expand the RIMS community in Latin America, the Middle East and the South Pacific. He noted that in recent times, RIMS executives have spoken at several international events, including risk-related fora in Japan, Brazil, Australia and Singapore. RIMS’ boards includes Mr Robert Zhang, a risk and compliance manager for IKEA (China) Investment Co Ltd, who is the first ever RIMS board member from outside North America.
International membership in over 60 countries
Ms Roth pointed out that RIMS’ international membership comprised over 60 countries, with the Australasia Chapter recording an impressive 126% increase in membership in 2014. A RIMS risk forum will take place in Melbourne in August.
On the internal front, Mr Roberts noted the growing membership of RIMS and the increased interaction with the risk management student community. RIMS has also engaged a new segment of professionals, the Rising Risk Professionals Community to gather both young risk managers and professionals who were making a transition into a risk management role.
Mr Roberts also said RIMS would soon be launching an online member engagement platform, which would allow members to connect to other RIMS members globally.
Ms Roth said: “RIMS will continue to take a close look at the resources and opportunities we offer to those just entering the profession. We want to make sure we’re empowering them with everything they need to be successful.”
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3D Printing – The fourth industrial revolution
3D printing has been used in everything from food, to medical treatment and aircraft manufacturing but brings with it challenges where regulations have not caught up with the technology.
One of the hot topics spotlighted by RIMS for 2015, the risks which 3D printing poses for companies, was discussed by Ms Lisa Cirando, Insurance Recovery Practice at legal firm Jones Day and Ms Cindy Slubowski, Vice-President, Head of Manufacturing at Zurich North America. They identified several risks:
| Product risk |
Whose product is it? There are many players including the maker of the 3D printer, designer of the 3D printer, the company behind the software for the object one is printing and the consumer who is customising the product.
From a legal point of view, how do you apportion liability when something goes wrong? So far, it seems that there has been no lawsuit filed yet due to damage or injury from 3D printed products, but this may only be a matter of time as its applications expand.
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| Technology risk |
Who owns the software and design, especially since the public can easily make customisations to commercial templates? |
| Operations risk |
As 3D printing could generate a lot of heat, how will it impact power supply? What about the toxicity that could be caused by materials and the business interruption and transportation risks? |
| Cybersecurity risk |
How does one protect one’s design, formulas and prevent counterfeiting? |
| Environmental risk |
What happens to the exhaust, housing and disposal issues? |
| Contract risk |
What risk transfer and licensing agreements does your company have in place, if any? |
| Insurance risk |
Do you have coverage? Where is the coverage coming from? |
| Strategic risk |
As 3D printing allows for new unusual partnerships, such as between a 3D printer manufacturer and a commercial company, how would they deal with a problem? How would they manage the reputational risk fallout, intellectual property and product life-cycle management? |
| Supply chain risk |
What happens to your supply chain risk? Does it increase or decrease with 3D printing? |
| Market risk |
What differentiates your product from other 3D printed ones? What happens to your geographical risk? |
Drones – The challenges of unmanned aerial vehicle (UAV) use
The use and regulation of drones form a subject that is hotly debated today, and at RIMS, it was no exception. A panel discussed the concerns posed by this growing technology, not all of which have been addressed by policymakers.
“Drones aren’t coming, they’re here…and their use in the US has gotten way ahead of regulation. The Federal Aviation Administration is playing catch up,” said Mr Timothy Crawley, of the law firm Anderson, Crawley & Burke P.L.L.C.
In the insurance industry, drones could be used for claims handling, in assessing building and casualty losses. In a ground-breaking announcement, the Swiss Post said that it will attempt drone delivery later this year. Drones have also been used in emergency operations, delivering medical supplies to remote areas. However, regulatory developments are currently in flux.
Concerns posed by drones include the following:
Privacy
Drones are not bound by physical barriers and have been used to spy on politicians in their homes. In the US, the FAA in February 2015 outlined its role in drone legislation as focused on safety and efficiency aspects rather than privacy, following which the President’s Office told all federal agencies to focus on privacy concerns in the use of drones. So even within the US, privacy implications of drones are still being discussed, and some US state regulations have outpaced federal legislation.
Liability
When something goes wrong, it is one thing for the drone operator to have made a mistake controlling the drone. But who will take the responsibility if it was a hardware or software failure? “When you think about what could go wrong with drones, I think we’re in for an evolving state of interesting claims,” said Mr Bruce H Raymond, of the Raymond Law Group L.L.C.
Regulatory Violations
Regulations surrounding drones are in flux across the world. In the US, there is the FAA, then there are states and local authorities which are coming up with their own regulations. Currently, the FAA has the following basic regulations concerning safety: Drones can be operated only by a licensed pilot, there must be a second observer, and they can only fly within line-of-sight. Drones cannot be flown over persons or moving vehicles, and must maintain a 100 feet horizontal clearance from them.
A drone operator also needs to look at the specific local regulations and abide by them.
Claims Handling
Currently, the FAA does not allow the flying of drones for commercial use, but exemptions can be sought. Some insurance companies have successfully sought waivers to operate drones in surveying disaster areas which are inaccessible by humans, thus enabling claims handling and risk assessment.
“It’s a cost thing, it’s an efficiency thing, it’s an improvement of quality of your product,” summed up Mr Scott Fazio, a director of risk management of the St Charles Parish Public Schools, Louisiana, whose district has beta-tested drones.
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Disruptive technology – Coping with risks as they come along
At a session hosted by the RIMS Silicon Valley Chapter, speakers discussed how companies working with disruptive technologies coped with risk management. With many new innovations, regulations play catch-up and risk managers and insurers will have to live with the uncertainty of dealing with new issues as they emerge.
Mr Jeff Pettegrew, Chief Imagination Officer of Insurance Thought Leadership, launched the discussion highlighting four key disruptive technologies – botsourcing and robotics, surveillance and wearable biometrics, exoskeleton technologies and autonomous transportation systems.
Google engages with insurers
Google’s first-ever and current risk manager, Ms Kelly Crowder, was asked about the tech giant’s risk priorities.
“There are ancillary things and standard property and casualty losses which we don’t want to happen, but these can eventually be absorbed, so it really comes down to what you are most worried about. This is about what has a longer term effect, such as what impacts Google’s reputation. An example is issues associated with privacy, how does Google safeguard that and make sure we’re doing the right thing for our users. Another thing is our employees, to make sure they’re protected and safe, and to put in place the proper protocols when they’re at work and travelling,” Ms Crowder said.
She also noted that there are insurance concerns to grapple with, and challenges involving new products for which there may not be an insurance solution.
At the beginning, there was low retention of policies as insurers could not ensure coverage for new services like driverless cars. Google’s product lines took the time to meet with insurers and show them what was in development. It has since come to an understanding with its insurer that beyond matters of “catastrophic” concern, it would proceed with business as usual.
Holistic risk management view
Google, whose corporate motto is “Don’t be evil” aspires to do things that make a positive difference. Ms Crowder said that the company takes a holistic risk management perspective, which is not necessarily always about insurance, rather, it is an aggregation of all the different risks and exposures and consideration of how best to mitigate them. A lot of the time, it is about loss control, doing the right things with the right protocols in place, contract management with some assumption of risk.
“Risk management is not top down – it’s something that’s enterprise wide and cuts across all lines. ...We’re not going to launch something until we’ve really tested it as much as possible. By the time regulation catches up, it will be a few more years, so we still have that time to do more testing,” she said.
Unique technology developed from scratch
Mr Erike Young, Google Global Safety Manager, said that disruption inherently implied uncertainty and risk, especially for companies like Google, which dealt with cutting edge technology that changes the way we do things. He noted that companies like Airbnb and Uber faced similar challenges with relevant regulations not being in place yet.
“There’re often no best practices as we’re developing them as we go along, so risk assessment is a huge piece of what we do. Our job is not to say no to the product teams, but to say yes, in a way that can work,” he said.
It also helps that Google has a large public relations and corporate communications team, with a separate PR person for each product line who worked very closely with the product team to ensure that there are proper protocols in place before adequate public announcements are made.
Mr Young concluded: “Sometimes there’s nothing out there yet from a safety training perspective if it’s a unique technology that we’re developing from scratch.”
With the motto of “Don’t be evil” guiding them, there are a lot of new risks that Google staff have to grapple with as they bravely go where no one else has gone, and develop new tech to change our lives.
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Political risks – Protecting your business in turbulent times
With the political volatility of recent times, assessing risk exposures should be an ongoing process for companies as their risk exposures may change. Political risk management strategies, together with hotspots of political risks were discussed at RIMS.
Ms Judith McInerny, Director of Risk Management at specialty glass and ceramics firm Corning, Inc., which has significant R&D, manufacturing, and supply chain in emerging markets, said that there is a variety of tools which are available to meet different political risk mitigation needs for businesses keen to enter volatile markets. These include surveys, joint ventures and
analyses.
Corning has a long history of purchasing political risk insurance since the 1960s and engages in robust analysis and debate on this issue at the C-suite level. It considers the types of assets, locations and industrial sectors in its markets. Over time, the values at risk have grown to exceed insurance capacity, Ms McInerny said. Confiscation, expropriation, nationalisation (CEN) have provided pricing benefits for political violence coverage, which is priced lower when both are bundled.
She added: “Political risks is one of the few programmes where you can buy a three-year programme. A good thing is if you purchase coverage for a country like Russia and have new assets rolled in before the troubles started, and you have coverage until the policy expires and hopefully you’re on the front end, not the back end of the policy. So the idea is you get coverage for a country you have some concerns about before problems arise.”
Use of captives and reinsurance to cover political risks
Mr David Anderson, Senior Vice President, Zurich Credit & Political Risk noted that 2010 – 2014 saw a dramatic decrease in rate of new credit insurance payment default notifications, but a marked increase in new notifications of political risk events.
He said that one new trend that has emerged is the use of captive insurance and reinsurance to cover political risks in countries that are difficult to insure. Captives can provide diversification as they are not correlated with other property and casualty risks and can provide additional premium income. One example was how a global drilling company secured $100 million in political risk insurance with a $10 million captive facility and a $90 million reinsurance limit from Zurich.
“On the other hand, it’s a low frequency, high severity business, so you may not want to exposure your captive if it’s not a mature captive that’s not well-capitalised. So some companies partner insurers to mitigate that loss potential.” he cautioned.
“You have to be really careful when reading the policy for political risk insurance and areas of coverage....the definitions can be really specific. It’s really worth spending time with insurers to see that what the wording means to them matches what you think it does,” advised Ms McInerny.
Concerns in the near future
Looking ahead beyond the current issues with Russia, Ukraine, Syria and the Islamic State, Mr Anderson said that his key concern was whether the US would cut a good deal with Iran. Other concerns include low energy prices, ISIS inspiring like-minded groups, Russia and Ukraine, Venezuela’s downward spiral and Brazil’s slowdown.
For Asia, both Mr Anderson and Ms McInerny shared concerns about North Korea where something really bad could happen in future.
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Multinational insurance programmes – Regulatory issues
Globalisation has necessitated global insurance solutions, as organisations have to operate across multiple continents. However, the regulation of insurance has remained local in most countries, with a few exceptions.
Meanwhile, risk managers have to deal with different jurisdictions, sometimes different state laws within the same country, and differences in rules across business lines and non-admitted risk coverage. This is not ideal for an MNC which hopes to achieve consistency in its insurance programmes across markets as far as possible. A session at RIMS discussed how risk managers and insurers could manage international insurance programmes and push for harmonised global rules.
Is a local policy necessary?
Opening the discussion with an example, Ms Petra Riga, Head of International Business, Sales & Distribution, Zurich Global Corporate, cited the case of the 2011 floods in Thailand. Thailand allowed non-admitted risk coverage from abroad but not loss adjusters. Faced with a lack of local loss adjusters, some of Zurich’s affected clients faced significant claims delays and recovery. Following this catastrophe, Thailand eventually allowed foreign loss adjusters after some delay.
Ms Riga noted that minimal customers were impacted, as Zurich typically advises clients in cases where there may be inconsistencies in local regulations to take up a local policy at the outset. “So we have to ask the client at the start, where do you want to get claims or premiums paid? Do you need risk engineering activities? You have to consider if a local policy is necessary,” she said.
Establishing a tax infrastructure
The Nordic countries and Australasia tend to be more liberal with provision of coverage from abroad, while Africa was cited as an example of a region that was not.
Ms Riga pointed out that while Australia accepts coverage out of the US, it is one of about 70 countries with non-admitted tax requirements. While providing coverage from abroad, one would need to disburse taxes to local authorities. To do so, it would be good for insurers to establish tax representatives and infrastructure in affected countries, bearing in mind that there could be tax audits.
Exceptions take time
Ms Janice Ochenkowski, International Director, Jones Lang LaSalle Incorporated noted that applying to an insurance regulator for a waiver is not a short term process.
Her company had done so in Morocco for a professional indemnity policy which no one was willing to write and it took close to two years before the local regulator mandated that a particular insurer write the coverage.
Risk managers may not be comfortable with this in the light of existing contractual obligations and potential losses.
Operational solutions
Ms Riga pointed out that there are solutions, but these too are complex. Following feedback received from customers who need to have global coverage consistency, Zurich has started to look into non-admitted DIC/DIL allowance in the countries it operates in.
Zurich has also come up with an industry-leading “Multinational Insurance Application” (MIA) compliance tool for the market, which is a database containing data of over 180 countries and over 40 lines of businesses and provides an updated view of the different insurance and premium tax laws and regulations applying in countries around the world.
Dialogue among trade associations, regulators and the insurance community
Mr Francis Bouchard, Group Head of Government and Industry Affairs, Zurich Insurance Group said that Zurich has presented to the IAIS on the regulatory issues it faces, and helped to raise awareness for the need to incorporate complexity reduction for international programmes into insurance core principles. Another area to look at is engaging ongoing international trade discussions, such as Trade in Services Agreement (TISA) discussions, and with the NAIC, OECD and the IMF.
“We’ve engaged insurance supervisors on international level, and also talked to individual risk managers, customers, carriers and brokers. We hope a coalition of the willing of sorts can emerge out of this dialogue, forming a neutral umbrella of the risk community to push for efficient and cost-effective regulations,” said Mr Bouchard. He noted that individual risk managers could also play a critical role in highlighting to their local supervisors about their businesses beyond the country and the need to manage risks on a holistic basis.
Asked what sort of progress he expected by RIMS ’16, Mr Bouchard noted that the process was not one which moved “terribly rapidly”. “We started the dialogue recently, and to be brutally candid, this is a multi-year effort. …I think the realistic expectation should be in the next year or two, we’ll have a much better sense of where the platform really is, whether it’s the IAIS core principles, OECD standard or G20 agenda etc. It’s hard to tell until we get into the real advocacy mode. Let’s see if the dialogue is going well with key governments around the world and supervisors are neutral or supporting us by next year, then it will be great progress.”
Ms Ochenkowski, who is also chair of RIMS’ External Affairs Committee, noted that her committee was in talks with Zurich, which has come to take a leadership role in this issue, and would come to a decision soon on RIMS’ position and involvement.
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