After the hit insurance companies took in 2011, businesses are continuing to experience changes in the property market in 2012.

“Companies can expect modest upward rate pressure due to severe global property losses back in 2011,” says Rick Miller, managing director of the National Property Practice for Aon Risk Solutions. “Capacity remains stable and some increased underwriting discipline is apparent, particularly around the peril of flood.”

Risk Management Solutions’ (RMS) latest version of catastrophe modeling software is estimating increased damage impact from Atlantic-based tropical storms from Texas to Maine. Miller says the new software has translated to many underwriters pushing for higher pricing for exposures subject to losses from tropical storms.

Smart Business spoke with Miller about what is happening in the property market and what new developments companies should expect to see this year.

What kind of market conditions can businesses expect as a result of recent developments, and who will be most affected?

Businesses can expect a modestly firming property market for natural catastrophe — exposed risks (windstorm, earthquake and flood) and generally flat pricing for all other risks. Windstorm and earthquake are more geographically predictable: Gulf Coast and Eastern Seaboard for windstorm, and California and Pacific Northwest for earthquake, while flood-prone areas exist in every U.S. state.

The newest versions of catastrophe modeling software contemplate more severe losses further inland for windstorm than previous models. While global earthquakes have been severe over the past couple of years, the U.S. property marketplace has only been minimally impacted.

Earthquake risk in the U.S. is more commonly associated with the West Coast, but Virginia had a moderate earthquake felt from Washington to Boston this past August. There are seismic areas in the middle of the U.S., as well.

The 2012 Atlantic Hurricane forecast is for lower-than-normal tropical storm activity.

What is behind the firming market?

The biggest drivers behind the firming property market and the resulting upward price pressure are insurer-incurred losses and lack of profitability. Most large property carriers suffered significant losses in 2011. Year-to-date losses in 2012 have been low compared to 2011.

The good news for businesses looking for property coverage is industry surplus or capacity is near historic highs. Buyer demand has been, at best, flat, following a few years of a slow economy. Strong supply and lagging demand have maintained a relatively competitive pricing environment despite the recent lack of profitability for insurers.

How quickly will these changes occur?

We saw modest upward pricing pressure the last two quarters of 2011. That’s not to say that if you look at the entire portfolio of accounts that all received an increase. Certainly, accounts that are more challenging from an exposure perspective, or those that have had losses, have already seen pricing pressure.

Most natural catastrophe property business renews in the first two quarters of the year, as these buyers do not want to be in negotiations during hurricane season June through November. Many large businesses say, ‘I don’t want to be in the market buying insurance if there is a big storm coming.’ You lose negotiating ability and potentially are exposed to reactive market behavior.

The flip side to that argument is that if there isn’t a big storm, you might have a market that is keener to do business; however, most buyers still choose to renew their property insurance in the first two quarters.

Accounts renewing in the first two quarters of 2012 experienced slightly more upward rate pressure than what was seen in 2011. The increase for most accounts was less than up 10 percent on rate. Some accounts that renewed in May or June had already experienced increased rates when they renewed last year and that reflected in less upward pressure than accounts that renewed in the Q1  and early Q2 of 2012. Absent a significant loss event such as a land-falling hurricane or earthquake in 2012, we expect rates will moderate and increased competition will return in 2013.

How will new developments affect limits, deductibles and coverage?

As far as limits, deductibles and coverage, we expect the market will remain generally stable. Some increase in underwriting discipline is likely to be felt in respect to coverage, limits, deductibles and pricing for commercial flood coverage (not the national flood insurance program).

What new products and services have been developed for the property market, and how can these benefit companies?

Aon has developed bed bug and rent protect insurance products. The bed bug product can provide cleanup/extermination and loss of income coverage to a variety of businesses and has seen the most interest from the hospitality and real estate industries.

The rent protect product can help real estate owners protect their income stream from tenants that default on their obligations.

Rick Miller is managing director of the National Property Practice for Aon Risk Solutions. Reach him at (617) 457-7707 or richard.miller@aon.com.

Insights Risk Management is brought to you by Aon Risk Solutions

Published in St. Louis

As labor rates rise in China, shipping costs increase, the dollar weakens and supply chains grow more complex, many industry analysts are suggesting U.S. manufacturing activity will increase over the next five years.

And while some risks such as supply chain failures may be reduced if manufacturing firms are closer to operations and manage them more effectively, other risks — such as medical cost inflation for workers’ compensation and nonoccupational injuries — are on the rise, says Mike Stankard, managing director and  Industrial and Materials Practice leader at Aon Risk Solutions.

“High-frequency, low-severity type risks, such as workers’ compensation or fire prevention, need to be managed on a day-to-day basis to prevent and mitigate losses,” says Stankard. “Businesses simply can’t overlook those because they face them every day. They also need to control losses that would prove catastrophic, such as large liability claims or the financial impact from natural disasters. Those risks can be managed with insurance because they are largely unpreventable, and businesses have an obligation to protect shareholders’ capital.”

Smart Business spoke with Stankard and John Gertken, senior account executive with Aon Risk Solutions, about how to manage risks facing the industrial and materials sector.

What are some risks that can impact the industrial and materials sector?

Aon Risk Solutions recently conducted a survey of business leaders in the industrial and materials sector to gauge their concerns, which included the economic slowdown — in both the U.S. and abroad, uncertainly surrounding raw materials and commodity pricing, and future innovations to keep up with customer needs.

In addition to the broad risks that drive macroeconomic issues affecting supply and demand, leaders must consider specific risks and manage them on a day-to-day basis to ensure efficient and effective execution of their business plan. In this area, risks include business interruption and supply chain failures, keeping up with emerging market opportunities and the risks and rewards of globalization.

What are some of the major drivers of risk?

The recession has had a profound impact on manufacturers that were forced to quickly adjust to changing demands for their products. The challenge was that no one knew just how low the economy was going to go. Some manufacturing employers reduced their work force by 40 to 60 percent and closed plants, although some of those reductions are starting to reverse. Many companies, especially automotive, used bankruptcy as the ultimate risk management tool to make long-term fixes to their macro-business models in the areas of labor contracts and raw material purchasing, shutting down inefficient plants and dropping marginal product lines.

Escalating health care costs continue to affect the work force both in terms of group medical insurance costs and workers’ compensation. When workers are injured, an employer is affected by wage replacement, medical costs and productivity leakage.

There’s also been reaction to all of the production moved offshore in the past 10 years. In 2011, natural disasters, such as the earthquake and tsunami in Japan, flooding in Thailand and earthquakes in New Zealand and Chile, put stress on the global supply chain, forcing companies to re-examine the vulnerabilities around their supply and customer chains. Many are now considering whether they were shortsighted when they moved production to low-labor rate countries that could potentially result in larger issues than just how much per hour they are paying employees.

How can mid-sized employers minimize risks?

Mid-sized employers may want to consider increasing workplace safety to avoid injuries that may result in expensive medical costs. As not all accidents are preventable, effective claims management practices on post-accident behaviors can help control medical costs and get workers back on the job as quickly as possible, even if it’s for light duty work.

When looking at the supply chain, manufacturers need to re-examine their supplier base to look for potential bottlenecks, single-source suppliers that could cause problems down the road. To minimize the risk, contingent business interruption coverage insurance around supply chain failure is available, which can cover loss of revenue.

However, it is important to note that underwriters have changed their business practices to limit their exposure in this space. They want to know about your suppliers — where they are located and how much business you do with them. For example, they might reduce your limits or restrict coverage so it only applies to direct suppliers rather than indirect ones, even though both can have just as much impact on your business.

Once risk management practices are in place, how can you measure them for effectiveness?

Your insurance broker, who optimally deals with your industry, knows it well and works with your peer companies, should be able to provide best practice benchmarks and performance metrics that can be continually updated. They can give you guidance on how to prevent and minimize claims as well as advice on the quality of insurance, how much you should purchase, how you should measure and value business interruption losses, etc. For example, your broker could perform a comprehensive evaluation of your workers’ compensation processes and losses, analyzing your environment and all of the losses you had on a granular basis. After determining the root cause of those losses, the broker would make recommendations such as ergonomic corrections, improvement in communications around losses and reporting lags.

These kinds of precise adjustments and the best practices associated with them could add up to millions of dollars in savings over time.

Mike Stankard is a managing director and Industrial and Materials Practice leader for Aon Risk Solutions. Reach him at (248) 936-5353 or email mike.stankard@aon.com.

John Gertken is a senior account executive with Aon Risk Solutions. Reach him at (314) 719-5193 or john.gertken@aon.com.

Please visit aon.com/industrialandmaterialsreport to download a copy of the 2012 U.S. Industrial and Materials Industry Report.

Insights Risk Management is brought to you by Aon Risk Solutions

Published in St. Louis

As labor rates rise in China, shipping costs increase, the dollar weakens and supply chains grow more complex, many industry analysts are suggesting U.S. manufacturing activity will increase over the next five years.

And while some risks such as supply chain failures may be reduced if manufacturing firms are closer to operations and manage them more effectively, other risks — such as medical cost inflation for workers’ compensation and nonoccupational injuries — are on the rise, says Mike Stankard, managing director and  Industrial and Materials Practice leader at Aon Risk Solutions.

“High-frequency, low-severity type risks, such as workers’ compensation or fire prevention, need to be managed on a day-to-day basis to prevent and mitigate losses,” says Stankard. “Businesses simply can’t overlook those because they face them every day. They also need to control losses that would prove catastrophic, such as large liability claims or the financial impact from natural disasters. Those risks can be managed with insurance because they are largely unpreventable, and businesses have an obligation to protect shareholders’ capital.”

Smart Business spoke with Stankard about how to manage risks facing the industrial and materials sector.

What are some risks that can impact the industrial and materials sector?

Aon Risk Solutions recently conducted a survey of business leaders in the industrial and materials sector to gauge their concerns, which included the economic slowdown — in both the U.S. and abroad, uncertainly surrounding raw materials and commodity pricing, and future innovations to keep up with customer needs.

In addition to the broad risks that drive macroeconomic issues affecting supply and demand, leaders must consider specific risks and manage them on a day-to-day basis to ensure efficient and effective execution of their business plan. In this area, risks include business interruption and supply chain failures, keeping up with emerging market opportunities and the risks and rewards of globalization.

What are some of the major drivers of risk?

The recession has had a profound impact on manufacturers that were forced to quickly adjust to changing demands for their products. The challenge was that no one knew just how low the economy was going to go. Some manufacturing employers reduced their work force by 40 to 60 percent and closed plants, although some of those reductions are starting to reverse. Many companies, especially automotive, used bankruptcy as the ultimate risk management tool to make long-term fixes to their macro-business models in the areas of labor contracts and raw material purchasing, shutting down inefficient plants and dropping marginal product lines.

Escalating health care costs continue to affect the work force both in terms of group medical insurance costs and workers’ compensation. When workers are injured, an employer is affected by wage replacement, medical costs and productivity leakage.

There’s also been reaction to all of the production moved offshore in the past 10 years. In 2011, natural disasters, such as the earthquake and tsunami in Japan, flooding in Thailand and earthquakes in New Zealand and Chile, put stress on the global supply chain, forcing companies to re-examine the vulnerabilities around their supply and customer chains. Many are now considering whether they were shortsighted when they moved production to low-labor rate countries that could potentially result in larger issues than just how much per hour they are paying employees.

How can mid-sized employers minimize their risks?

Mid-sized employers may want to consider increasing workplace safety to avoid injuries that may result in expensive medical costs. As not all accidents are preventable, effective claims management practices on post-accident behaviors can help control medical costs and get workers back on the job as quickly as possible, even if it’s for light duty work.

When looking at the supply chain, manufacturers need to re-examine their supplier base to look for potential bottlenecks, single-source suppliers that could cause problems down the road. To minimize the risk, contingent business interruption coverage insurance around supply chain failure is available, which can cover loss of revenue.

However, it is important to note that underwriters have changed their business practices to limit their exposure in this space. They want to know about your suppliers — where they are located and how much business you do with them. For example, they might reduce your limits or restrict coverage so it only applies to direct suppliers rather than indirect ones, even though both can have just as much impact on your business.

Once risk management practices are in place, how can you measure them for effectiveness?

Your insurance broker, who optimally deals with your industry, knows it well and works with your peer companies, should be able to provide best practice benchmarks and performance metrics that can be continually updated. They can give you guidance on how to prevent and minimize claims as well as advice on the quality of insurance, how much you should purchase, how you should measure and value business interruption losses, etc. For example, your broker could perform a comprehensive evaluation of your workers’ compensation processes and losses, analyzing your environment and all of the losses you had on a granular basis. After determining the root cause of those losses, the broker would make recommendations such as ergonomic corrections, improvement in communications around losses and reporting lags. These kinds of precise adjustments and the best practices associated with them could add up to millions of dollars in savings over time.

Mike Stankard is a managing director and Industrial and Materials Practice leader for Aon Risk Solutions. Reach him at  (248) 936-5353 or email mike.stankard@aon.com.

Please visit aon.com/industrialandmaterialsreport to download a copy of the 2012 U.S. Industrial and Materials Industry Report.

Insights Risk Management is brought to you by Aon Risk Solutions

Published in Detroit

Traveling and working abroad often comes with risks, and savvy employers recognize that having employees overseas heightens their corporate liability. By protecting employees against the risks of global travel, employers can manage risks to their business, finances and reputation.

“In today’s litigious society, corporate governance and duty of care are paramount to a company’s crisis management strategy,” says Justin Priestley, executive director for Aon Crisis Management. “Businesses need to react to incidents in a timely and consistent manner, protecting their people, assets, balance sheet and brand reputation.”

Smart Business spoke with Priestley and Kevin J. Pastoor, CPCU, managing director of Aon Risk Solutions, about how to keep your employees safe abroad.

 

How can businesses ensure that they are meeting their duty of care requirements?

There is a lot of complicated case law on this subject, but the issues are simple. There are three things businesses should consider, and by doing so, they will meet their duty of care.

The first step is actively trying to understand what the risks are for your people, and that means doing a formal assessment of risk. If you say you didn’t know about it, that’s not good enough. You could have tried to find out.

The second thing you need to do is come up with appropriate risk management measures that are matched to the risks you think exist. You need to demonstrate that the plan you are coming up with is appropriate for the risks your employees are facing.

Third, organizations should have a plan and discuss it. Talk about appropriate levels of insurance and how employees are going to get to the airport if there is a problem. Broadly speaking, those steps together provide organizations with a much better opportunity to demonstrate that they are meeting duty of care.

How can businesses ensure they are prepared for travel emergencies?

An adviser can match what it delivers to what it thinks are the main pillars of activity. So up front, it would provide information to travelers so they are aware of the risks in a particular area. An adviser can also provide some basic-level training for travelers.

Another thing a consultant can do, if people are traveling to an elevated risk location — somewhere like Mexico or India — is conduct an independent risk assessment of that proposed journey. It can be done quite quickly; it’s not some long, laborious process. It provides the concerned organization with a third-party independent review for a journey before it is booked, which backs them up in their assessment.

What type of training and education should employers provide for traveling employees?

There are two types of training. E-learning allows organizations to show that people have done the training. We also do an elevated risk course, which is instructor-led.

That course tends to be more specific to a particular client. Another option is an elevated risk course, in which the threats and risks are determined for where someone is going, and then travelers are trained to understand them. For instance, if you are in Central America, kidnapping is one of the major risks, and this is how it happens.

Then a consultant can offer advice on situational awareness. Many people understand what to look for and how to notice if something suspicious is happening. There is some really basic advice on risk mitigation strategies, like not wearing your Rolex watch if you’re traveling in more interesting parts of the world.

It’s important to focus on sensible, pragmatic advice that businesspeople need to understand.

 

What innovative services can help business travelers?

Mobile technology enables a traveler to see a country’s risk information on the go. Putting that information in people’s pockets is actually quite useful.

It doesn’t produce 20 pages of data on each country. It’s short, concise and condensed. Most people don’t want to read for 30 minutes to understand an issue. They want to read it in two minutes.

Second, there is a nice travel management system for risk managers or corporate security that enables them to know at the push of a button where their people are on a day-to-day basis and what the risk exposure is for those people.

Aon WorldAware, our online country information service, grades risks by looking at what is going on in that country, the capability of the terrorist organizations and their modus operandi. It gives ratings of 1 through 5, on a daily, weekly, or monthly basis, and they can print a report showing how many people they have in low-risk countries, or Level 4 or 5 countries, how many incidents they have had and where those incidents occurred.

It is an independent assessment. A partner has people constantly reviewing every country. There are 10 factors, including terrorism, civil disobedience, kidnap and ransom, street crime. All 10 factors for every country are assessed and scored 1 through 5.

Countries rated 1 through 3 are appropriate for routine business travel. For countries 4 and 5, you have to consider the risks a bit more. To put that into context, Level 5 countries like Iraq, Somalia, or Afghanistan have extreme risks.

The system monitors what happens in the world on a daily basis, and the countries are updated as the risk profile changes.

 

Justin Priestley is executive director for Aon Crisis Management. Reach him at 44 (0)20 7882 0478 or justin.priestley@aon.co.uk. Kevin J. Pastoor, CPCU, is managing director of Aon Risk Solutions. Reach him at (248) 936-5346 or kevin.pastoor@aon.com.

Insights Risk Management is brought to you by Aon Risk Solutions

Published in Detroit

Traveling and working abroad often comes with risks, and savvy employers recognize that having employees overseas heightens their corporate liability. By protecting employees against the risks of global travel, employers can manage risks to their business, finances and reputation.

“In today’s litigious society, corporate governance and duty of care are paramount to a company’s crisis management strategy,” says Justin Priestley, executive director for Aon Crisis Management. “Businesses need to react to incidents in a timely and consistent manner, protecting their people, assets, balance sheet and brand reputation.”

Smart Business spoke with Priestley and David Drier, an international producer at Aon Risk Solutions, about how to keep your employees safe abroad.

How can businesses ensure that they are meeting their duty of care requirements?

There is a lot of complicated case law on this subject, but the issues are simple. There are three things businesses should consider, and by doing so, they will meet their duty of care.

The first step is actively trying to understand what the risks are for your people, and that means doing a formal assessment of risk. If you say you didn’t know about it, that’s not good enough. You could have tried to find out.

The second thing you need to do is come up with appropriate risk management measures that are matched to the risks you think exist. You need to demonstrate that the plan you are coming up with is appropriate for the risks your employees are facing.

Third, organizations should have a plan and discuss it. Talk about appropriate levels of insurance and how employees are going to get to the airport if there is a problem. Broadly speaking, those steps together provide organizations with a much better opportunity to demonstrate that they are meeting duty of care.

How can businesses ensure they are prepared for travel emergencies?

An adviser can match what it delivers to what it thinks are the main pillars of activity. So up front, it would provide information to travelers so they are aware of the risks in a particular area. An adviser can also provide some basic-level training for travelers.

Another thing a consultant can do, if people are traveling to an elevated risk location — somewhere like Mexico or India — is conduct an independent risk assessment of that proposed journey. It can be done quite quickly; it’s not some long, laborious process. It provides the concerned organization with a third-party independent review for a journey before it is booked, which backs them up in their assessment.

What type of training and education should employers provide for traveling employees?

There are two types of training. E-learning allows organizations to show that people have done the training. We also do an elevated risk course, which is instructor-led.

That course tends to be more specific to a particular client. Another option is an elevated risk course, in which the threats and risks are determined for where someone is going, and then travelers are trained to understand them. For instance, if you are in Central America, kidnapping is one of the major risks, and this is how it happens.

Then a consultant can offer advice on situational awareness. Many people understand what to look for and how to notice if something suspicious is happening. There is some really basic advice on risk mitigation strategies, like not wearing your Rolex watch if you’re traveling in more interesting parts of the world.

It’s important to focus on sensible, pragmatic advice that businesspeople need to understand.

What innovative services can help business travelers?

Mobile technology enables a traveler to see a country’s risk information on the go. Putting that information in people’s pockets is actually quite useful.

It doesn’t produce 20 pages of data on each country. It’s short, concise and condensed. Most people don’t want to read for 30 minutes to understand an issue. They want to read it in two minutes.

Second, there is a nice travel management system for risk managers or corporate security that enables them to know at the push of a button where their people are on a day-to-day basis and what the risk exposure is for those people.

Aon WorldAware, our online country information service, grades risks by looking at what is going on in that country, the capability of the terrorist organizations and their modus operandi. It gives ratings of 1 through 5, on a daily, weekly, or monthly basis, and they can print a report showing how many people they have in low-risk countries, or Level 4 or 5 countries, how many incidents they have had and where those incidents occurred.

It is an independent assessment. A partner has people constantly reviewing every country. There are 10 factors, including terrorism, civil disobedience, kidnap and ransom, street crime. All 10 factors for every country are assessed and scored 1 through 5.

Countries rated 1 through 3 are appropriate for routine business travel. For countries 4 and 5, you have to consider the risks a bit more. To put that into context, Level 5 countries like Iraq, Somalia, or Afghanistan have extreme risks.

The system monitors what happens in the world on a daily basis, and the countries are updated as the risk profile changes.

Justin Priestley is executive director for Aon Crisis Management. Reach him at 44 (0)20 7882 0478 or justin.priestley@aon.co.uk. David T. drier is an international producer at Aon Risk Solutions. Reach him at (314) 719-3892  or david.drier@aon.com.

Insights Risk Management is brought to you by Aon Risk Solutions

Published in St. Louis

There has never been a more challenging time for employers dealing with the dual problem of rising health care costs and declining employee health. As such, employers need to be thinking very differently about how they approach health care, says Jim Winkler, a senior vice president and large employer segment leader at Aon Hewitt.

“Employers need to actively, directly and candidly talk with employees about the need to change behaviors for better health,” says Winkler. “You need to build in the right combination of rewards so that employees understand that if they want to spend a large amount of ‘house money’ on health care, they have to follow  ‘house rules’.”

Smart Business spoke with Winkler about the challenges and solutions surrounding health and benefits, and how to address them.

How can employers begin to have a conversation with employees about health care?

You first have to understand how consumers think about health care. Our Consumer Mindset 2011 research tells us that they understand that the system is broken, they understand the political dynamics and they know what they need to do in terms of health. Everyone knows they shouldn’t smoke, they should eat better and they should exercise. However, the messages that employees react best to are those that make navigating health easier and more personal.

Don’t talk to them about the company’s costs. Instead, talk about how a lack of health may be getting in the way of teaching a grandson baseball. You need to make it meaningful to employees so they understand the results of good health.

You also need to deploy more than just one tactic. You can’t just have a great communications strategy, and you can’t just have a plan design or incentive strategy. With consumer-driven health plans, consumers understand that you want them to be better consumers, but if all you give them is that design mechanism, you’re just going to frustrate them because they don’t understand the cost of specific health services. You have to give them the tools and information to navigate a broken system and help them see how their exposure to potentially higher out-of-pocket costs is going to enable them to make healthier decisions. You have to connect those pieces.

For example, if you have a consumer-driven plan, don’t just put employer money in the savings account. Instead, say, ‘If you complete a health risk assessment and you know your biometrics, then we’ll put money into your account.’ Make it very clear that you want employees to be successful under the benefits plan and to have access to more of the employer’s money, but you need them to do something in exchange.

People don’t always like that, but they can see very clearly how the actions they take can lead to good things and how inaction can result in a less satisfactory benefit plan.

How can an employer target better health for employees?

There are two starting points. First, as an employer, you want to have your arms around your data. Maybe you’ve done a health risk questionnaire and you have medical claims data in such a way that you can stratify it to say that, of the eight greatest risk factors (such as smoking, lack of health screenings, poor diet, etc.) and the 15 most prevalent chronic conditions, these are the ones that are most prevalent in your population. From that, you can target those two or three greatest risk factors that will lead to the best improvement in health status and a lessening of the frequency and severity of chronic disease.

If you don’t have that data because you’re a smaller company or you haven’t performed a health improvement strategy yet and have no real insight into company-specific risks, the three areas to target are poor diet, physical inactivity and lack of health screenings.

Your real opportunity for impact is to get after weight, as more than two-thirds of the U.S. population is either overweight or obese, and physical inactivity. With health screenings, you begin to build a baseline, and the more screenings you do, the more you understand risk in your population. And screenings are an early identifier of risk and disease, so you start to put a dent in high-cost conditions. If people wait until they’re diagnosed, then they’re likely to be on medication for life and have a higher cost outcome.

How do you address concerns about employers being involved in employees’ health care?

As an employer, you have to start with the basic premise that your current cost environment, the way you’re running your benefits program today, is not sustainable. If you’re going to change the status quo, can you continue to do the things you’ve been doing, like plan design changes that shift costs to employees and changing your medical vendor? Is it reasonable to assume the same tactics will produce a different outcome?

No, so you have to take a different approach. There are two paths you can take. One is the path of house money, house rules. Be candid with employees and share that the reason you’re talking to them about their health, and their behavior,  is that you’re spending a lot of money on health care, so the organization has a vested interest in managing health care costs more effectively.

Second, in a challenging global economy, you need a healthy, present, high-performing work force. What percentage of your work force is out because of health issues? What if you could cut that number in half? You add nothing to your payroll costs, you spend less on medical coverage, and you get people back to work who are more productive to the business.

It’s in your best interest to drive business results to spend less on health care and have a healthy work force, and the way you’re going to get that is by engaging people around their health.

Jim Winkler is senior vice president at Aon Hewitt, the global human resource solutions business of Aon plc. Reach him at jim.winkler@aonhewitt.com. Linda Van Howe is senior vice president at Aon Hewitt, Detroit practice leader - Health and Benefits. Reach her at (248) 936-5238 or linda.van.howe@aonhewitt.com.

Insights Risk Management is brought to you by Aon Risk Solutions

Published in Detroit

There has never been a more challenging time for employers dealing with the dual problem of rising health care costs and declining employee health. As such, employers need to be thinking very differently about how they approach health care, says Jim Winkler, a senior vice president and large employer segment leader at Aon Hewitt.

“Employers need to actively, directly and candidly talk with employees about the need to change behaviors for better health,” says Winkler. “You need to build in the right combination of rewards so that employees understand that if they want to spend a large amount of ‘house money’ on health care, they have to follow  ‘house rules.’”

Smart Business spoke with Winkler and John T. Vollmer, senior vice president/local practice leader, Aon Hewitt, about the challenges and solutions surrounding health and benefits, and how to address them.

How can employers begin to have a conversation with employees about health care?

You first have to understand how consumers think about health care. Our Consumer Mindset 2011 research tells us that they understand that the system is broken, they understand the political dynamics and they know what they need to do in terms of health. Everyone knows they shouldn’t smoke, they should eat better and they should exercise. However, the messages that employees react best to are those that make navigating health easier and more personal.

Don’t talk to them about the company’s costs. Instead, talk about how a lack of health may be getting in the way of teaching a grandson baseball. You need to make it meaningful to employees so they understand the results of good health.

You also need to deploy more than just one tactic. You can’t just have a great communications strategy, and you can’t just have a plan design or incentive strategy. With consumer-driven health plans, consumers understand that you want them to be better consumers, but if all you give them is that design mechanism, you’re just going to frustrate them because they don’t understand the cost of specific health services. You have to give them the tools and information to navigate a broken system and help them see how their exposure to potentially higher out-of-pocket costs is going to enable them to make healthier decisions. You have to connect those pieces.

For example, if you have a consumer-driven plan, don’t just put employer money in the savings account. Instead, say, ‘If you complete a health risk assessment and you know your biometrics, then we’ll put money into your account.’ Make it very clear that you want employees to be successful under the benefits plan and to have access to more of the employer’s money, but you need them to do something in exchange.

People don’t always like that, but they can see very clearly how the actions they take can lead to good things and how inaction can result in a less satisfactory benefit plan.

How can an employer target better health for employees?

There are two starting points. First, as an employer, you want to have your arms around your data. Maybe you’ve done a health risk questionnaire and you have medical claims data in such a way that you can stratify it to say that, of the eight greatest risk factors (such as smoking, lack of health screenings, poor diet, etc.) and the 15 most prevalent chronic conditions, these are the ones that are most prevalent in your population. From that, you can target those two or three greatest risk factors that will lead to the best improvement in health status and a lessening of the frequency and severity of chronic disease.

If you don’t have that data because you’re a smaller company or you haven’t performed a health improvement strategy yet and have no real insight into company-specific risks, the three areas to target are poor diet, physical inactivity and lack of health screenings.

Your real opportunity for impact is to get after weight, as more than two-thirds of the U.S. population is either overweight or obese, and physical inactivity. With health screenings, you begin to build a baseline, and the more screenings you do, the more you understand risk in your population. And screenings are an early identifier of risk and disease, so you start to put a dent in high-cost conditions. If people wait until they’re diagnosed, then they’re likely to be on medication for life and have a higher cost outcome.

How do you address concerns about employers being involved in employees’ health care?

As an employer, you have to start with the basic premise that your current cost environment, the way you’re running your benefits program today, is not sustainable. If you’re going to change the status quo, can you continue to do the things you’ve been doing, like plan design changes that shift costs to employees and changing your medical vendor? Is it reasonable to assume the same tactics will produce a different outcome?

No, so you have to take a different approach. There are two paths you can take. One is the path of house money, house rules. Be candid with employees and share that the reason you’re talking to them about their health, and their behavior,  is that you’re spending a lot of money on health care, so the organization has a vested interest in managing health care costs more effectively.

Second, in a challenging global economy, you need a healthy, present, high-performing work force. What percentage of your work force is out because of health issues? What if you could cut that number in half? You add nothing to your payroll costs, you spend less on medical coverage, and you get people back to work who are more productive to the business.

It’s in your best interest to drive business results to spend less on health care and have a healthy work force, and the way you’re going to get that is by engaging people around their health.

Jim Winkler is senior vice president at Aon Hewitt, the global human resource solutions business of Aon plc. Reach him at jim.winkler@aonhewitt.com. John T. Vollmer is senior vice president/local practice leader, Aon Hewitt. Reach him at (314) 719-3834 or john.vollmer@aonhewitt.com.

Insights Risk Management is brought to you by Aon Risk Solutions

Published in St. Louis

Political risks are generally unpredictable and often unexpected, which makes them a concern for business owners. Losses that occur as a result of political unrest are often excluded from typical property coverage, so companies must be diligent.

“These losses, when they happen, have the potential to be financially severe,” says Roger S. Schwartz, senior vice president, Political Risk Practice with Aon Risk Solutions. “They have the potential to have a very definite negative impact on the company’s well being. Executives should be aware that operating in emerging markets has its risks, but the risks can be mitigated.”

Smart Business spoke with Schwartz and Terrence Parks, senior account executive, Aon Global Client Network, about why businesses should be concerned about political risks and how to protect against them.

What are some examples of political risk?

The events that transpired in the Middle East provide examples, especially for companies with exposures in countries that were targeted by the Arab Spring. An oil and gas operation in Libya, for example, would have potential for damage as a result of the revolution, as well as potential for disruption of operations. The company might not have been able to conduct drilling, so it would face a business interruption loss.

These events have the potential for ripple effects. If you are contracted to do work that depends on materials, commodities or services provided in a particular country, an interruption in your ability to provide that work can cause a break in the contract downstream for the end user. There are a variety of things that can occur, not the least of which is the potential for physical damage losses, which generally are not covered under the standard property policies.

Even terrorism coverage will take you only so far. Some property policies have brought terrorism coverage back; some organizations have to buy it separately. In the context of Tunisia, Libya, Egypt, Syria and Bahrain, all of those events were acts of political violence. They are not classified as terrorism, so losses caused by those events would not have been covered under a standard terrorism policy.

How can businesses expand their coverage to include political risks?

There is a policy sold routinely designed to insure political violence. It adds a number of components to the terrorism coverage: war, civil war, rebellion, revolution, insurrection, strikes, riots, civil commotion and malicious damage. These are extra coverages that are specifically excluded by the property policy and terrorism policy. Companies operating in emerging markets that are politically unstable should consider adding that suite of coverages.

 

How can companies determine whether they need to add these coverages to their risk management portfolio?

It is a function of cost versus benefit. If you or one of your key suppliers or customers are operating in an emerging market and you think there is a potential for this type of risk to occur, it is something you may want to hedge. Some companies may choose to self-insure because, as a class, political risk fits under the low-frequency/high-severity class of catastrophic losses. It’s not the sort of risk where you can point to a consistent, ongoing loss stream as you might with a property or casualty policy.

Organization leaders often say, ‘The odds are with me; perhaps I may not need to expend the premium.’ This is the same sort of calculation you make or don’t make when you think about buying an earthquake policy or a terrorism policy.

How can businesses account for political risk in their risk management planning?

It requires a corporate exercise in introspection. Companies need to take into account the line of business in which they are operating. These issues are going to be self-evident to people who give the matter consideration.

If you are a company working in an emerging market that is politically unstable, the probability is that you know the issue of political risk exists and that you have an exposure to it. The next question you should ask yourself as a business owner is, ‘Does it make sense economically or otherwise for us to mitigate that risk?’

It depends on who you are and what you are doing, but that is a decision that has to be made internally after a balanced review with risk management and the company’s insurance broker. When you are doing an enterprise risk management analysis, you’re basically looking at the shock loss to a company from a variety of different angles. Political risk is just another one of those angles.

Risk management is a function of the economics of the situation. People in manufacturing have a different viewpoint than people in service industries. Publicly traded companies have to be cognizant of the fact that there is a certain amount of shareholder scrutiny. If you look at any public company’s 10-K form, there is a section devoted to that company’s risk factors. As a matter of routine, CFOs use this section to warn investors and potential investors that the business could be impacted by political risks.

 

For more information on political risk and its potential impact for businesses, visit http://www.aon.com/2012politicalriskmap.

Roger S. Schwartz is a senior vice president, Political Risk Practice, with Aon Risk Solutions. Reach him at (212) 441-1125 or roger.schwartz@aon.com. Terrence Parks is a senior account executive, Aon Global Client Network, with Aon Risk Solutions. Reach him at (248) 936-5268 or terrence.parks@aon.com.

Published in Detroit

Political risks are generally unpredictable and often unexpected, which makes them a concern for business owners. Losses that occur as a result of political unrest are often excluded from typical property coverage, so companies must be diligent.

“These losses, when they happen, have the potential to be financially severe,” says Roger S. Schwartz, senior vice president, Political Risk Practice with Aon Risk Solutions. “They have the potential to have a very definite negative impact on the company’s well being. Executives should be aware that operating in emerging markets has its risks, but the risks can be mitigated.”

Smart Business spoke with Schwartz and David Schaake, resident sales director, Aon Risk Solutions, about why businesses should be concerned about political risks and how to protect against them.

What are some examples of political risk?

The events that transpired in the Middle East provide examples, especially for companies with exposures in countries that were targeted by the Arab Spring. An oil and gas operation in Libya, for example, would have potential for damage as a result of the revolution, as well as potential for disruption of operations. The company might not have been able to conduct drilling, so it would face a business interruption loss.

These events have the potential for ripple effects. If you are contracted to do work that depends on materials, commodities or services provided in a particular country, an interruption in your ability to provide that work can cause a break in the contract downstream for the end user. There are a variety of things that can occur, not the least of which is the potential for physical damage losses, which generally are not covered under the standard property policies.

Even terrorism coverage will take you only so far. Some property policies have brought terrorism coverage back; some organizations have to buy it separately. In the context of Tunisia, Libya, Egypt, Syria and Bahrain, all of those events were acts of political violence. They are not classified as terrorism, so losses caused by those events would not have been covered under a standard terrorism policy.

How can businesses expand their coverage to include political risks?

There is a policy sold routinely designed to insure political violence. It adds a number of components to the terrorism coverage: war, civil war, rebellion, revolution, insurrection, strikes, riots, civil commotion and malicious damage. These are extra coverages that are specifically excluded by the property policy and terrorism policy. Companies operating in emerging markets that are politically unstable should consider adding that suite of coverages.

How can companies determine whether they need to add these coverages to their risk management portfolio?

It is a function of cost versus benefit. If you or one of your key suppliers or customers are operating in an emerging market and you think there is a potential for this type of risk to occur, it is something you may want to hedge. Some companies may choose to self-insure because, as a class, political risk fits under the low-frequency/high-severity class of catastrophic losses. It’s not the sort of risk where you can point to a consistent, ongoing loss stream as you might with a property or casualty policy.

Organization leaders often say, ‘The odds are with me; perhaps I may not need to expend the premium.’ This is the same sort of calculation you make or don’t make when you think about buying an earthquake policy or a terrorism policy.

How can businesses account for political risk in their risk management planning?

It requires a corporate exercise in introspection. Companies need to take into account the line of business in which they are operating. These issues are going to be self-evident to people who give the matter consideration.

If you are a company working in an emerging market that is politically unstable, the probability is that you know the issue of political risk exists and that you have an exposure to it. The next question you should ask yourself as a business owner is, ‘Does it make sense economically or otherwise for us to mitigate that risk?’

It depends on who you are and what you are doing, but that is a decision that has to be made internally after a balanced review with risk management and the company’s insurance broker. When you are doing an enterprise risk management analysis, you’re basically looking at the shock loss to a company from a variety of different angles. Political risk is just another one of those angles.

Risk management is a function of the economics of the situation. People in manufacturing have a different viewpoint than people in service industries. Publicly traded companies have to be cognizant of the fact that there is a certain amount of shareholder scrutiny. If you look at any public company’s 10-K form, there is a section devoted to that company’s risk factors. As a matter of routine, CFOs use this section to warn investors and potential investors that the business could be impacted by political risks. <<

For more information on political risk and its potential impact for businesses, visit http://www.aon.com/2012politicalriskmap.

Roger S. Schwartz is a senior vice president, Political Risk Practice with Aon Risk Solutions. Reach him at (212) 441-1125 or roger.schwartz@aon.com. David Schaake is resident sales director with Aon Risk Solutions. Reach him at (314) 854-0821 or david.schaake@aon.com.

Published in St. Louis
Wednesday, 29 February 2012 19:01

How to handle the latest risk management topics

At the Risk and Insurance Management Society (RIMS) annual Conference and Exposition, risk professionals including CEOs, CFOs and risk managers come together with brokers, insurers, thought leaders and industry experts to learn about new products and services, share ideas and gather information about the evolution of risk and risk management.

“Our goal is to create an environment for clients of all sizes to learn about our breadth of expertise and unmatched ability to support their businesses,” says Kathleen Delaney, a senior vice president with Aon Risk Solutions. “Often, CEOs are not aware of the different liabilities they carry as an officer for the company and the emerging exposures facing their business as a whole. RIMS presents a wonderful opportunity to share the solutions available to manage these risks and help decision makers sleep at night.”

Smart Business spoke with Delaney and Carol A. Williams, managing director and COO of Aon Risk Solutions, Detroit, about why business leaders should consider attending the RIMS conference.

What is RIMS, and who are its members?

RIMS is a nonprofit organization that focuses on advancing the practice of risk management. The majority of its members are risk managers or intermediaries for corporations and other organizations, insurers and other service providers. Financial officers, general counsel and executives overseeing risk management with corporations and other organizations are also members.

Why is continuing education important in risk management?

Risk management is a combination of art and science. As the world becomes more risky, tools used to understand, forecast and manage risk are constantly evolving. It is vital for risk professionals to grow with this evolution so they are best equipped to serve their organizations.

From preparing for insurance renewals to analyzing total cost of risk to managing risk enterprisewide, risk professionals as well as business executives must be diligent about continuing education and professional development. Without knowledge and awareness, businesses become much more vulnerable to the risks they face.

In addition to the RIMS international conference, Aon provides numerous educational opportunities for its clients each year. It produces white papers, develops fact-based benchmarking and industry reports, and provides educational forums at the local office level. Aon also participates in educational programs at the RIMS national and local chapter level. Our goal is to share information about current and emerging risk management issues and trends impacting various industry sectors.

What issues will be tackled at RIMS 2012?

The agenda is robust and comprehensive. The biggest and most current issues facing businesses today will be tackled. Because risk management is so specific to each business, the hot issues are different for every risk professional. Eleven of Aon’s thought leaders will participate in panel discussions about acute and emerging risk management issues, including mergers and acquisitions and cyber liability.

Professionals from across the globe will come to the conference and meet with clients and prospects to discuss risk management needs and share insights and ideas.

For more specialized topics than are covered in the panels, attendees can visit Aon’s Clientopia. It is set up in a nearby offsite area but done in conjunction with the conference. There, you can get very personalized attention to your business needs and set up meetings with insurers to discuss issues and receive a more detailed overview of what a risk manager can bring to the picture for your business.

What kind of business is done at the conference?

The relationship-building and transfer of knowledge that occurs is strategic and lasting. The conference allows business leaders from many industries to discuss their approach with industry-leading risk advisers and brokers, meet with insurance carriers, talk about current issues and prepare for the future. The conference can be an eye opener for those who do not understand their company’s risk profile. They may blindly approach a booth and leave with ideas and tools to support the growth of their organization.

How can someone who is interested get involved with RIMS?

There are great opportunities for professionals of all levels who deal with issues of risk to learn more. There are Risk Management 101-esque sessions at the annual RIMS conference for everyone from general counsel to chief financial officers to get familiar with the issues facing their businesses so they can make intelligent decisions that will have a direct impact on their balance sheets. In addition, several cities have very robust local chapters.

You mentioned local RIMS chapters. What other types of local opportunities are available for education?

RIMS and Aon alike present sessions and forums in cities around the country. The basic issues covered can be valuable, especially for busy executives who may not be able to attend the three-day annual conference. These programs are designed to speak to the different aspects of risk and target general counsel or CEOs who may not be risk professionals but need to have a grasp of the issues. The programs are especially useful for CFOs of firms that may not have dedicated risk managers and for someone who is wearing many hats in an organization, including risk management.

For information on Aon at RIMS in Philadelphia April 15-18, visit rims.aon.com.

Kathleen Delaney is a senior vice president with Aon Risk Solutions. Reach her at (212) 441-1662 or Kathleen.Delaney@aon.com. Carol A. Williams is managing director and COO of Aon Risk Solutions, Detroit. Reach her at (248) 936-5291 or carol.williams@aon.com.

Published in Detroit