Insurance is all about risk management and limiting loss. So how do insurance companies limit the risk within their own businesses? The answer is reinsurance — insurance for insurance companies.
“Policyholders transfer their financial risk to their insurance company,” says Tom Hudock, risk manager with Westfield Insurance. “The company retains some of that risk and transfers, or cedes, the remainder to other insurance companies called reinsurers. Reinsurance is primarily insurance for an insurance company. Large self-insured businesses can also purchase reinsurance to reduce their risk.”
Smart Business discussed with Hudock the purpose and the impact of reinsurance in the insurance industry.
Why do insurance companies purchase rein-surance?
When an insurance company issues a policy, it promises to pay for future claims that may occur. In order to deliver on these promises, an insurer must remain financially sound. Reinsurance preserves policy-holders’ surplus (retained earnings).
There are three main reasons why insurance companies purchase reinsurance: capacity, stability and catastrophe protection.
- Periodically, an insurer will purchase
reinsurance on a single large risk, e.g. a $50
million building. This is called facultative
reinsurance. It provides the insurer with
the capacity to insure a risk that might otherwise be declined.
- Treaty reinsurance is another type of
reinsurance that insurance companies buy
to stabilize their underwriting results for
their portfolio of risks. Loss experience
varies from year to year, and reinsurance
helps smooth earnings.
- Insurance companies are exposed to very large losses from catastrophes, like hurricanes and earthquakes, which could result in bankruptcy. To protect its policy-holders’ surplus, an insurer will purchase catastrophe reinsurance that limits its loss from a single event to a predetermined amount.
How does reinsurance work?
The insurance company provides the reinsurer with loss exposure data, claims experience and the amount of risk that the insurer wishes to retain. The reinsurer then determines the reinsurance premium. A portion of the premium that is collected from the policyholder is ceded to the rein-surer in payment for the risk assumed by the reinsurer.
For example, the insurer may retain the first $1 million of loss and the reinsurer(s) may agree to pay the next $4 million. If a policyholder were to incur a $5 million loss, the insurer would pay its policyholder $5 million, and then be reimbursed $4 million by the reinsurer.
How does reinsurance affect business insurance policyholders?
Depending upon the size, location and type of risk to be insured, a business may have difficulty finding affordable insurance due to the availability and/or the cost of reinsurance. Smaller insurance companies depend more on reinsurance than the large national insurance companies. In some cases, even the largest insurer may not be willing to offer insurance due to the lack of reinsurance.
For example, a business occupying the Sears Tower in Chicago may not be able to buy terrorism insurance because reinsurance for a terrorist event is not available.
How is reinsurance related to industry cycles?
The reinsurance industry also goes through hard and soft markets. In the two years following the World Trade Center attacks in 2001, total losses — including from hurricanes and other long-tail liabilities — exceeded $50 billion, and capital losses from the global fall in equity values exceeded $180 billion. This created a hard market for reinsurance in which demand for reinsurance exceeded supply, causing premiums to rise. This contributed to the hardening of the primary insurance market.
Due to the increase in reinsurance rates, and because 2006 was a very profitable year for reinsurers due to a mild hurricane season, there are signs that the reinsurance market may be softening. This will ease pressure on primary insurers’ pricing.
What else should businesses know about reinsurance and industry cycles?
Most reinsurers write business worldwide, while most U.S. insurers only write business in the United States. The U.S. insurance and reinsurance cycles are linked together but do not move perfectly in sync. Softness in reinsurance pricing contributes to the depth and length of the soft market for primary insurers. Usually, the market does not begin to harden until reinsurer pricing rises.
TOM HUDOCK, CPCU, ARM, ARe, risk manager, can be reached at (330) 887-0654 or firstname.lastname@example.org. In business for more than 159 years, Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product we offer is peace of mind and our promise of protection is supported by a commitment to service excellence. For more information, visit www.westfieldinsurance.com.
This single-model, staff-augmentation mentality can be serviceable, but it can also foster a lack of project planning and focused initiatives.
“Too often, the needs of the day prevail; I call it the ‘tyranny of the urgent,’” says Bill Russell, executive vice president of Allegient in Indianapolis. “Instead of applying a project-oriented focus to maximize outside resources, the resources are expected to walk in the door and simply complete coding tasks.”
Smart Business recently spoke with Russell about alternative project models and how companies can best align internal assets with outside resources to bring about successful IT projects.
What indicators point toward utilizing outside resources?
The first indicator is the most crucial and may have nothing to do with required technical skills. Will the business and technical subject matter experts (SMEs) be available to carry their end of the project? You have to have people on the inside who really know the business process to define what must be delivered.
A second common indicator is that the existing staff doesn’t know about or have experience with a new technology. A third indicator that outside resources may be required is the speed or timing of the project. When projects are sole-sourced inside the company, they often cannot meet the speed requirement because projects often fall to second priority behind keeping the other systems running.
What are realistic expectations for SMEs?
Generally, companies overestimate how much time these subject matter experts can put into an initiative and they under-weight the demand from their daily responsibilities. These people have full-time jobs and they’re going to be constrained. There’s a survey by Forrester that says the biggest hurdle to companies’ IT initiation and delivery is due to SME constraints.
Some companies will utilize dedicated SMEs for certain strategic projects. For other projects, it is reasonable for SMEs to only be available 10 percent to 15 percent of their time with a maximum of 25 percent while maintaining their regular job. In high-growth companies, it’s unrealistic to expect an SME to spend more than 10 percent to 15 percent of his or her time on an IT project. This calls for consideration of outside resources.
What other resources should be considered for IT projects?
Companies should realize that all of their existing staff is going to be constrained. Generally, only about 25 percent of a company’s IT budget and resources are dedicated to accomplish new capabilities, so outside resources become crucial to amplify the available in-house knowledge and skills.
Outside resources are going to have the concentrated focus to bring the project together and manage it on a day-to-day basis. There are outside resources for project management, business process and requirements definition experts and development and testing that can be applied.
How are outside resources best aligned with in-house personnel?
A system of ‘shadows,’ or pairs, at the lead positions can be effective. A project manager, lead developer or test manager provided by the outside resource can be paired with and leverage the internal SMEs in these categories. In this model, SMEs can handle perhaps six or more projects, while the external team concentrates solely on the individual project it is trying to deliver. This pairing allows the outside resources to navigate through the company’s cultural policies and procedural items (SME assistance) while focusing on managing the initiative and the resources to get the work done.
It’s also extremely important to align the outside resources with both the internal business and IT project sponsors. This communication triangle ensures that the external resource maintains a tight collaboration between both the business needs and the IT group needs.
A key benefit to alignment is that it helps build knowledge transfer into the project plan. If an external team handles the entire project and then walks out the door, it does not leave the internal team in very good shape to continue to support the platform. A pairing system builds knowledge transfer into the process.
What alternatives to the pure staffing model should be considered?
Projects that are time-sensitive or unanticipated may require an alternative.
One alternative is to consider defining either parts of projects or entire projects so that outside teams can be brought in and held accountable. At the end of the day, inside resources simply cannot be held as accountable as outside resources.
Defining sharp boundaries that include specific requirements, timelines, budgets and deliverables allows the outside resources to focus on completing the project with little day-to-day support distraction for existing systems.
BILL RUSSELL is executive vice president of Allegient. Reach him at (317) 564-5701 or email@example.com.
In the months after the Sept. 11 terrorist attacks, the company now known as Marketing Informatics was taking in less than $15,000 a month in revenue. But when Bob Massie closes the book on 2006, the company’s founder and CEO expects revenue to top out at more than $30 million with 100 employees. Massie credits a culture of teamwork and camaraderie for the direct marketing company’s turnaround the 10 employees Massie had at the time of the crisis were willing to miss paychecks and do whatever they could to turn the company around. Smart Business spoke with Massie about how finding the right employees to create a seasoned people stew can help you conquer any challenge.
Find your way as a leader. I like thinking of myself as the head of the family more than an autocrat. It’s not self-conscious. It’s who I am as a person and how I have had to learn to function in this job given my personality. (But) to say I use that style would intimate that I have some self-conscious choice in that effort.
When you grow at the rate that we’ve been growing, it’s almost like there is something new every week that I’ve got to learn, or some new hat that I’ve got to find and make fit my head.
I certainly understand what drives people to be looking at manuals on leadership and different theories about it all. But if you put somebody else’s clothes on, you’re always going to feel like a pretender. Everybody that’s conscientious wants to grow into a capable and respected leader. Sometimes, you’ve got to try those different outfits on and take a piece of it here and a piece of another one there until you finally come to grips with who you are.
If you use those things to avoid coming to grips with who you are, it probably delays you becoming the leader you want to be.
Be consistent. The role of the CEO is utterly critical, but I don’t think the CEO can take him or herself that seriously. If there isn’t an entity, in this case the CEO, defining the objective and rallying the troops with the resources that they need, you can’t win the battle.
It is defining the objective, giving the resources, rallying the troops, making the decisions that need to be made on any kind of an enterprise and essentially facilitating the process so the troops can be successful at what they are doing.
I have to know where we’re going. I can’t decide today that we have one objective and tomorrow that we have got another one just because we had some opportunity come along that might essentially double our growth or give us a 50 percent hit.
Be adaptable. There has to be a consistent objective for the organization and a consistent rallying of the troops and provision of everything that needs to be done.
In a growth company, one of the big challenges is making sure the financial resources are available, making sure that the kind of new people being injected into the organization are right for the people stew that you have brewing.
One CEO could succeed in one setting and fail in another. In a very rapidly growing company, every six months, you have got a different people stew. Make sure the resources and the people coming in to that stew are as appropriate as possible to the mix and that they are the most capable, bright, competent people that we can possibly afford to put in the mix.
Don’t try to do it all. I have delegated all internal authority to the president of the company. I remind myself every day that we have one CEO and we have one president, and the two of them don’t need to be doing each other’s jobs.
If I was a CEO and I was reporting to an owner, it would be a whole different environment. I can accept the investment of resources that won’t pay off for three years, where a CEO that reported to an owner or board may need to have a resource paying off in three months.
I have the unique opportunity of being both owner and CEO rather than being CEO and president. I can inject my own values, my own personal long-term vision and have it coincide identically with the vision for the company.
If you’re anything above 10 or 15 people, and you’re both president and CEO, you have a fool for an owner.
I don’t think one person can do both jobs in an organization that is anything other than stagnant. You cannot be a visionary ambassador to the banking industry, to your main customers and to your professional industry and effectively administrate all of the dynamics and responsibilities of a growing organization internally.
We could not, in any stretch of the imagination, have grown 100 percent a year for four years if I was president and CEO. One of those two roles is going to fall on its face.
Big companies divide these responsibilities out of the sheer practicality that if they don’t do it, they will not be able to report shareholder value back to Wall Street. What makes somebody think that at a small level, they can be what Wall Street demands?
Don’t believe the hype. If you have the right mix of folks together that are better than you and that complement you and that both offset your weaknesses and enhance your strengths, then you end up looking pretty good. Just be careful not to drink the Kool-Aid about how good you really are.
A leader is not a leader in a vacuum. One person in one group of people will have a completely different level of success as that same person in another group of people because there are entirely different social and political dynamics that go on.
Have a culture of collaboration that is held together with a chain of command and accountability structure. People know what’s expected of them, have the resources that they need, have the respect they deserve and thoroughly enjoy this journey we’re on together. That’s the goal.
We don’t always make it that way. But if you aim at nothing, you hit it every time.
HOW TO REACH: Marketing Informatics, (877) 788-4440 or www.marketinginformatics.com
Media sources are constantly reporting on white-collar crimes that are taking place from local businesses to national corporations. In the past decade, there have been many high profile, white-collar crime cases.
Fraud cases have been around since the beginning of time because there are always people in the world who try to obtain money, contracts, or something of value by lying and deceiving, says Linda Pence, director for Sommer Barnard.
There is currently a heightened awareness and vigilance with white-collar crimes. The days when the CEOs of companies were thought of as untouchable or gods are gone.
Smart Business spoke with Pence about the increased awareness of such crimes, the steps to take to prevent such crimes and how to recover after being a victim.
What steps should business owners take to protect themselves against white-collar crime?
There are numerous forms of white-collar crimes. They are often considered paper or nonviolent crimes that usually involve illegally taking something of value. They can vary from selling inferior goods, embezzlement, bribery, receipt of kickbacks, securities fraud, price-fixing and antitrust violations. One needs to understand their business to protect themselves properly.
First do a risk assessment. What type of business is your company involved in, and what crimes are typical for such a business? For example, corporations may be at risk for embezzlement. It is hard to know what everyone is doing at all times. Therefore, such companies need to make sure there are financial controls in place to prevent such crime.
Second, set an ethical tone. Act in a manner which you expect others to act. Business owners lead by example. If you, as the head of the company, are misusing company funds, employees are going to notice. Then employees who would have never thought of acting unlawfully before begin to think, ‘Who cares? The boss is not being honest, why should I?’
Teach all employees integrity and develop compliance programs. Make sure employees understand the mission of the company.
It is important to bring in people who are reliable, dependable and honest. Controls should be put in place to ensure compliance. If employees know there are internal controls in place, honest management and ethical employees, they are less apt to commit a crime.
What warning signs can business owners look for to protect their company against such crimes?
It is crucial to trust your gut instinct. The people committing these crimes may be your partners and friends, but it is important to investigate every accusation to protect your company.
Crimes occur when responsibilities are given to trusted employees who then are not supervised. Given full reins, an employee can commit numerous crimes. It is important to design a type of checks or balances system to prevent such crimes.
Some people commit crimes to keep their business afloat. In desperate times, people may try to take a little from the company with the intention of paying it back later. This is never acceptable and typically cannot be paid back.
Why should they invest money in protection?
Investigation of wrong-doing is very disruptive and hurts businesses. Employees are questioned, files are audited, and lawyers and investigators are in and out of the office. These interruptions decrease production and make employees uneasy.
Investigations also entail substantial fines. Running the business ethically and investing in means to do so will pay off in the long term.
Business owners often do not learn of a criminal investigation until an investigator shows up asking questions of employees or a subpoena is served. Your entire company quickly becomes part of an investigation. Companies must hire attorneys and investigators.
As these processes take place, time, money and productivity is lost. Employees will be interviewed. This process often frightens employees and makes it difficult to focus on the needs of the business.
Investing money to prevent all of these losses not only saves money but may save your company.
How should a company respond if it is a victim of a white-collar crime?
If a company has been a victim of fraud, it should report the crime immediately. Many federal and state actions protect victims and recover monetary losses. If a corporation is the victim, it must make sure the media is reporting the story accordingly. You want people to know you were the victim.
LINDA PENCE is a director at Sommer Barnard PC. Reach her at firstname.lastname@example.org.
Born: Columbus, Ind., grew up in Columbus, Ohio.
Education: Bowling Green State University, 1981, bachelor’s degree, business
What was the biggest business challenge you’ve faced, and how did you overcome it?
Integrating two companies through acquisition over two different periods of time.
There were a lot of lessons learned in the first one that could be applied to the second.
It was a learning process recognizing some things that went well and also recognizing what was learned through failure and not repeating it the second time around. As much as you can learn by reading. There was no substitute for the experience.
What really proved to be the most helpful was talking with individuals throughout the organization at different levels, listening and then recognizing when the listening was over to take decisive action and be real clear about why the decisions were made.
What is the most important business lesson you’ve learned?
That customers come first. An organization needs to be focused on solving problems for customers.
What was your first job, and what did it teach you?
Delivering newspapers in Columbus, Ohio, for The Citizen Journal. It was a morning route. It taught a real discipline about work ethic.
That job required getting up at 4 a.m. every morning. No one was accountable for getting those papers on the doorstep other than me. You had to go back and collect from the customers. The sale wasn’t made until the actual collection was achieved.
I ended up paying for those papers. If somebody was delinquent on their account, that was profit right off the bottom line. I learned about collections, profit and accountability.
Dennis Casey knew that his company was at a crossroads. It was May 2005, and Casey had just been named president of Anthem Blue Cross and Blue Shield of Indiana. The company, with 700 employees and annual revenue of more than $1 billion, was six months away from embarking on a complete change of its core operating system.
This wasn’t the kind of change that could be conveyed in an e-mail, a note tacked to the bulletin board next to the water cooler or at a morning staff meeting in the conference room.
This change was too big for that.
Once implemented, it would put the company in a better position to handle the increased workload in the midst of the mergers and acquisitions that have made it part of WellPoint Inc., the largest health insurer in the country. “If we don’t make this change now, we are not going to be positioned competitively in the marketplace,” Casey says.
The challenge Casey faced was figuring out how to convey that message to his employees.
“It takes time to change the direction of an organization, and it takes time to create your vision within your organization,” Casey says. “You have to be able to work through people to achieve success.”
Using a comprehensive plan of open dialogue, inclusion and collaboration, Anthem was able to overhaul its core operating system while continuing its pace of rapid growth. Since 2000, it has grown from 450,000 group members to 800,000. “If we were not delivering on our promises to our customers and to our providers and to our brokers, we would not have seen the growth,” Casey says.
Opening a dialogue
After holding a variety of senior management positions over the years with Anthem Blue Cross and Blue Shield of Indiana, Casey knew how important the system conversion was to the company’s future.
Making it work rested with his ability to develop a strategy that would convince employees of its importance and get them enthused about the benefits of the new system.
“The real challenge is, how do you drive that home with people who, day-to-day, are accustomed to working on one system?” Casey says. “They are very good at it and they were providing a good level of service to our client. You go to them and say, ‘Guess what? We’re going to change everything you look at every day.’
“It was really challenging the folks to say [to them], ‘Hey, this is really important to our company long term and to our customers. Therefore, it should be important to you. We need your help to get this done.’”
One advantage Casey has in implementing new strategies is the familiarity his tenured employees have with change through the numerous mergers and acquisitions that eventually led to the formation in 2004 of WellPoint Inc., of which Anthem Blue Cross and Blue Shield of Indiana is a subsidiary. “Our folks are sitting here today and understand where the organization is going,” Casey says. “The next thing you know, we have another merger acquisition on the table. So immediately, the question comes up, ‘What does this mean to me?’ “There is less panic and fear and concern now around our growth because people are more accustomed to change. They accept change, see it as a challenge and they look for new opportunities. It’s more of a positive challenge than a threat.”
But this particular plan was about a lot more than just asking his employees to take one for the team.
He wanted them to know that once they got past their initial uneasiness about the system conversion, it would also make it easier for them to do their jobs.
“It was kind of like if you are a right-handed hitter and I’m going to teach you how to switch-hit,” Casey says. “You know how to hit, but you’ve just never seen the ball coming from the other side of the plate. It’s that kind of environment, and there is a natural hesitancy to learn the new ways.
“The key was communication and involvement. We had a lot of our staff folks that do the work day in and day out in terms of answering our phones and communicating with our customers involved in the design phase of our new system. We basically brought a core system to them and said, ‘This is how this works. What changes do you need to make it even better for what you do?’” Casey says once that was done, training began in earnest for virtually every one of the 700 employees. The message was also conveyed through simple correspondence from one employee to another, where it became clear that the effort had paid off.
“They say, ‘Hey, it’s a change, but you’re really going to like it when you get used to it.’ If they have that level of confidence and respect for the leadership of the company, they are going to step up and want to be part of that,” he says.
“In order to do that, they’ve got to believe that the management of this organization understands their needs as well as our customer needs, cares about both, balances the needs of both and responds to that. The core element is two-way trust.”
With the new system now in place, Casey says efficiency, speed and accuracy have all increased, along with growth in Anthem’s customer base.
“I bill and credit our success to our people,” Casey says. “The real differentiator becomes your ability to harness the energy and brilliance of other people and do that better than your competitors do.”
Inclusion and collaboration
Casey’s success in changing over the company’s core operating system illustrates that developing a strategy is never as easy as just sitting in a room one day and drawing up a plan. It must include contingency plans that address changes that may occur as the strategy is put into place.
“There really aren’t a lot of people that are just smart enough to absolutely predict the future every time,” Casey says. “So you better be ready to change, and you need to be flexible.”
And before trust can be developed between employees and management, there must be trust among members of the management team.
Casey says a good CEO recognizes the importance of gathering input from other senior leaders in the company, even if that input does not exactly match the view of the CEO.
“I’m a very aggressive, very competitive person,” he says. “And I really enjoy having people around me that will challenge me. Our unspoken rules around the planning table are very simple. First of all, we’re a team. I believe, and I know that my people know that I believe, that our best solutions will come from the collective minds of the people in that room.
“Often, I will shape a discussion and throw something out on the table and say, ‘Hey, I think we might want to consider this or that.’ But the end result is always better than what I put on the table or what any member of the team puts on the table.”
The key is to have leaders in your company with whom you are willing to place your trust and confidence.
“You have to have strong people around, and you can’t be threatened by that,” Casey says. “If somebody comes back at me and says, ‘Dennis, I think you’re all wet on this one. You’re missing a really critical point,’ then I think you need to pay heed and attention.
“Some people use a power response, saying, ‘Too bad. This is where we’re going. Get on the bus.’ Personally, I don’t believe that. If one of them is questioning something that I put on the table or something one of their peers put on the table, I have an inherent trust and belief that they are trying to make things better and they truly believe there is another path to go down.”
Casey realized the benefits of a more collaborative style of leadership in college.
“You’d have a study group, and five people would present a paper,” Casey says. “I may have been a little egocentric in those days because I basically said, ‘I can’t really trust my future and my grades in these people’s hands because I don’t know them.’”
As he moved into the business world, Casey learned that guiding a company by yourself does not work nearly as well as writing your own research paper.
“My responsibilities started to expand, and all of a sudden, I realized that you can’t do it all yourself. The definition of management is getting things done through other people. If you could do everything yourself, you wouldn’t need the four or five or 50 people you have on your staff. By developing that skill of delegation, I’m that much more effective.”
The team approach has served Casey well. But once a consensus is reached on how to move forward, he expects the group to march in lockstep to execute the plan.
“Once that team makes a decision, you owe it to the team to support that outcome,” he says. “One thing I do not tolerate is people walking away from a key decision in our organization and saying, ‘Well, that’s what they decided. I didn’t think it was a good idea.’
“If things are mandated from the top down and everybody is told what to do, I assume people might disagree with the outcome. If people have the ability and the right to participate in the development of the outcome, you have a responsibility once that decision is made to work very hard to execute it on behalf of your team.”
Success breeds success
Once everyone is on the same page with a new strategy, most companies get a boost from the simple fact that people like to be part of something successful.
“There are not a lot of folks that really want to go to work and just sit in a corner by themselves all day long,” Casey says. “Most people, regardless of personality, enjoy success, and they want to be part of a successful team.”
One of the greatest rewards of being an executive is watching people step up to a challenge.
“They always respond better than you imagined if they trust you and they trust your leadership,” Casey says. “Nothing breeds success like success. People get involved and start getting recognition for the work that they are putting in. Those are incredible motivators. People get in that frame of reference and say, ‘Wow, what’s the next big challenge?’”
Casey also believes that a successful CEO is only as good as the family he or she has standing by them. He and his wife of 32 years, Ginny, have three children.
“As the kids grow older, they really ask very insightful questions that really cause me to think about who I am,” Casey says. “Business can be very challenging and very trying. That is where that family piece centers you, no matter how crazy things get around here or how difficult the challenges are.”
Often when people are asked to name a component of a successful IT project, such as a sales system, they will mention aspects that are in direct interaction with the user (Web pages, client applications, etc.). What is often forgotten is that the vast majority of projects are now datacentric. Data needs somewhere to reside where it can be successfully stored, queried and retrieved. As a result, choosing the right database platform to handle the data becomes critically important.
“Databases are often an afterthought when it comes to planning a business project,” says Arie Jones, a senior consultant for Perpetual Technologies Inc. “Today’s data-centric world demands that the handling of data be given as much forethought as any other area of a project. A properly chosen database should be the anchor of any successful IT project.”
Smart Business spoke with Jones about the importance of choosing the right database.
How should a business decide on which database is right?
Choosing a database for a particular IT task or project is a lesson in risk management and is one that does not necessarily follow the adage of ‘higher risk leads to higher reward.’ Many times, the amount of risk that your company is willing to assume is inversely related to the cost of the associated database application that will work for your project. So the more risk you are willing to assume, the lower the cost of the associated system.
More mature and proven relational database systems such as Oracle and Microsoft SQL Server will generally be more expensive than newer XML-based systems such as eXist, which are not as proven in their design.
What are the common types of databases on the market today?
Generally speaking, today’s market contains two major competing types of database platforms: Open Source and Proprietary. Open Source products are those that are based upon an Open Source Agreement in which the source code is distributed with the application and the user is generally able to alter and re-distribute it. Platforms such as MySQL, PostgreSQL and Firebird use this type of licensing which allows them to be cost-efficient and allows a business to spend less time worrying over licensing.
On the other hand, proprietary database platforms such as Microsoft’s SQL Server, Oracle’s 10g or IBM’s DB2 suite will be more expensive but will contain the most cutting-edge features that IT-centric businesses desire. These systems generally are tightly integrated with a full suite of tools and applications that increase productivity and give a better return on investment by lowering subsidiary operating expenses.
What factors should a company consider when choosing database technology?
Security: Security should be one of the foremost considerations in selecting a database suitable for your IT environment. Specifically, you need a database that conforms to the security protocols that your business has established to maintain data. Do you need your database security model to be integrated into a network security model or will it need to have the ability to accept client security certificates? Will the database need to enforce business security practices such as password complexity and expiration? All of these are valid questions that a business needs to ask and address before committing to a particular database platform.
Data format: Data is generally stored in either relational or XML based format. Relational databases have been around for years and their methodology and reliability are mature and dependable. XML databases offer greater flexibility for your data but are a less mature platform.
Cost: Consider how much the database platform will cost in terms of licensing and setup costs in order to get the system going. Often licensing issues and their associated fees are one of the most complex areas when deciding on a particular platform as the licensing options often are as numerous as the types of platforms themselves.
ARIE JONES is a senior consultant for Perpetual Technologies Inc. Reach him at email@example.com.
For years, meteorologists, air traffic controllers and financial professionals have used predictive modeling to peek into the future. Mathematical modeling tools, ranging from relatively simple linear equations to sophisticated intricate software, harness the power of statistical analysis to predict real-world situations. As the financial stakes increase in the health insurance world, anticipating future risks becomes more important.
“In very simple terms, predictive modeling helps people grapple with mountains of data and make decisions about what to do, or not to do, to maximize outcomes,” says Sally Stephens, founder, owner and president of Spectrum Health Systems. “Although predictive modeling is rather late in coming to the health care industry, it has become widely popular.”
Smart Business spoke with Stephens about the benefits of predictive modeling in forecasting and preventing health care expense.
Why is predictive modeling a powerful tool in managing health care costs?
In the past, the health insurance industry focused on disease management programs. These initiatives offer special assistance to patients already diagnosed with specific high-cost conditions such as heart failure, diabetes and asthma. Disease management will continue to be a critical component of health care, but to manage costs more efficiently, insurers now need to analyze whole populations.
Predictive modeling can identify high-risk patients that might otherwise fall through the cracks. New tools go beyond the chronically ill with comorbid conditions and the chronically ill who have yet to develop comorbid conditions. Predictive modeling looks at outcomes for patient populations. Its broader approach encompasses plan participants who are at risk for chronic illness as well as those who are not currently at risk.
How can predictive modeling facilitate the underwriting process?
Traditional underwriters have used data such as age, sex, geographical location, industry and prior medical costs to project future expenses and set premiums. But as the amount of underwriting data available to health plans has exploded, effective underwriting has become increasingly challenging. Predictive modeling tools can be far more accurate than a simple analysis of claims outlays. For example: a $500 claim for a broken arm is not a good indicator of future claims, while $500 for an initial cancer workup could indicate significant claims in the future.
How can predictive modeling assist companies by educating employees?
Predictive modeling enhances employee education initiatives because it
- Isolates the high-impact individuals for whom it is possible to effect the greatest change.
- Pinpoints the diseases and conditions that need to be managed.
- Identifies the population in need of education programs or telephonic support.
- Determines what risk factors influence the utilization patterns.
- Demonstrates the value-add of care management and disease management interventions.
In what ways does predictive modeling help individuals with chronic diseases?
Medical societies and disease-based associations, such as the American Diabetes Association, have established standards of care for the major chronic diseases. These standards list the tests, maintenance drugs and care frequency for each illness. Failure to comply with these standards generally results in patients with uncontrolled disease, worsening health and rising costs.
The medical community underserves plan members with chronic conditions. Compliance with national standards of care ranges from a low of 28 percent for members with asthma to a high of 69 percent for members with coronary artery disease.
Predictive modeling can assist care managers by identifying members who are noncompliant with the standards of care and provide appropriate level interventions to improve outcomes.
How can businesses obtain predictive modeling services?
Since predictive modeling has become increasingly popular, more employers will have access to this tool through a variety of sources. Third-party administrators, insurance companies and case or disease management providers are offering this system as a standard or additional service offering. Employers can seek the advice of their benefits consultants or insurance brokers to determine the best approach for utilizing predictive modeling as part of their cost management tool box.
SALLY STEPHENS is the founder, owner and president of Spectrum Health Systems. Reach her at (317) 573-7600 or firstname.lastname@example.org.
Forget alarm systems. The most potentially dangerous intruders already know the codes. When employee dishonesty penetrates a company, the consequences can be incredibly damaging.
“Financial losses from employee dishonesty do happen,” says Ralph Cummings, fidelity underwriter at Westfield Insurance. “We see them every day. “The results can be devastating not only financially but also psychologically. The guilty employee often is a trusted, long-time member of the business. The hurt that comes from the breach of trust adds to the loss.”
Smart Business spoke with Cummings about the issue of employee dishonesty and how to prevent it.
How do dishonest employees steal from their companies?
Small-scale theft happens with the loss of relatively low-cost materials and supplies. Large-scale theft usually results from taking expensive property or accessing the company’s bank account.
At one truck dealership, an individual in the parts department took expensive truck parts with him over a long period of time. He would make excuses, such as he was taking the items for a delivery, when in fact he was taking them for his own profit. Another unfortunate loss happened with a contractor whose bookkeeper took money from the company over a period of seven years. The loss exceeded $1 million and cost the owner his business and his relationship with his sister, who was the bookkeeper.
The business community often isn’t aware of these dangers and situations because the affected companies don’t want to publicize the loss. But the truth is that employee theft does happen, particularly when employees are trying to support expensive bad habits, and businesses need to guard against it.
How does employee dishonesty affect businesses’ insurance expenses?
Insurance is a mechanism for spreading losses among policyholders. Protection against a large, uncertain loss (an embezzlement) is traded for a small, certain loss (the premium). As a company’s losses grow in size and amount, the premiums to pay for them will increase.
How can companies create a culture of honesty and integrity?
Every company should closely examine the way it deals with its customers and employees. Does the company deal fairly with others, or does it often take advantage of them? If employees are encouraged or permitted to deal dishonestly with customers, how can they be expected to deal with integrity with their employer? A culture of honesty and fair dealing must start with upper management. Treating employees fairly and respectfully is also very important. Showing an interest in each employee, and making each feel that his job is important can foster employee satisfaction. But beyond that, an employer must demonstrate that cheating, dishonesty and unfair business practices will not be tolerated.
What controls can help prevent employee dishonesty?
Over the years, I have seen many employee dishonesty losses. There is one method that seems to recur most often and seems to result in very large losses.
Every insured company has a bank account. At least one employee is responsible for reconciling the monthly bank statements against the employer’s records. That person is the most likely to detect any discrepancy between the two. Very large losses happen when this person is also permitted to handle bank deposits or to have access to blank checks.
For example, if an employee is given a deposit to take to the bank but decides to keep it for himself, the bank statement will show no deposits for that particular day. An impartial bookkeeper would catch this discrepancy in the records. However, if the person reconciling the bank statement is also the person who should have made the deposit, he will obviously not let management know about his theft. With no unusual records and no checks on the behavior, the employee is free to continue this activity indefinitely.
Likewise, if the person who reconciles the bank statements also has access to unissued checks, he could use the employer’s checks to pay his personal bills, make purchases, or simply make checks payable to himself. Even if this individual does not have check-signing authority, he could forge a signature. Banks generally just pay the checks and rely on the customer to let them know of any discrepancies. It is not uncommon for losses of this type to continue for years and reach very high amounts.
One of the biggest keys to preventing employee dishonesty is to have the bank accounts reconciled by someone who does not handle the bank deposits and who does not have access to unissued checks.
RALPH CUMMINGS is a fidelity underwriter. Reach him at (330) 887-0544 or email@example.com. In business for more than 157 years, Westfield Insurance provides commercial and personal insurance services to customers in 17 states. Represented by leading independent insurance agencies, the product we offer is peace of mind and our promise of protection is supported by a commitment to service excellence. For more information, visit www.westfieldinsurance.com.
When there are four opinions on everything, things can get a little crazy.
Yet Steve Soule enjoys the push and pull he has with the three other managing members at CMR Construction and Roofing LLC. Soule and Ross Hail were the initial partners of the 100-employee company, and were later joined by Bryan Jones and John Brown. Soule, the CEO, views the partnership as a way of forming a good balance within the company.
“Ross comes up with some wild ideas, and I do, too. But he’s kind of the protagonist, and I’m kind of the antagonist,” Soule says. “He comes up with 50 ideas, and I shoot down 30 of them. A lot of the time my response is, ‘That’s a great idea, but how are we going to do that? Is that a realistic goal?’”
In 2005, CMR generated $8 million in revenue, up from $4.5 million in 2004 and $2.8 million in 2003.
Smart Business spoke with Soule about how to find employees, make decisions and grow a company.
Q: How much input do you get when making decisions?
If there’s a decision to be made, or something of that nature, then I make the decision and explain to the people why the decision was made, and then we move forward with it.
I believe in not asking somebody to do something I wouldn’t be willing to do myself. That helps get people on board because they see the confidence you have in your own decision.
There are other decisions you want to discuss. In every decision we make, we put a lot of time and thought on how people are going to handle and react to that decision. Especially on the major ones.
A lot of the time, I discuss an idea or concept with different people just to see what their reaction is to it and if they have any improvements or any additional ideas that can make the concept a better one.
Q: How do you deal with failure?
I take responsibility for it. It doesn’t matter if it’s my fault or not. If it’s a decision I signed off on, it’s my decision, and I take responsibility for it.
I may deal with that other person. If they were involved in it and it was something negligent on their part, I might handle that with them. But I will still ultimately take responsibility for that decision. You need people to step up and say, ‘Hey, let’s make this thing right.’
On a smaller level, if I made a decision about how to do a project, or if there was a salesman or a commission involved, I’ll stick up for the guy and take care of it if it wasn’t his fault. If it was with the customer, make it right with the customer. If I have to rip it off and do it over again, I’ll rip it off and do it over again.
That’s one of the things I tell customers. I can’t sit here and promise you everything is going to go perfectly. If I tell you that, then eventually, to somebody, I am going to be a liar. The only thing I can guarantee is that I will complete this contract, and when it is done, it will be done right.
Any problems arise, I will correct them. I carry that same philosophy in the office as well.
Q: What do you look for in employees?
We shifted our focus away from hiring experienced salesmen to focusing more on recent college graduates. I can offer a sales rep a lot more than what they would probably be making as a starting salary.
By being able to be at the upper echelon of what is being paid to these college graduates, I can hand-pick the ones I want, looking for that perfect blend of outgoing and social activities, good grades and extracurricular activities; the ability to handle a lot of things and to be self-motivated to go out and do more.
Instead of picking these guys up off of Monster or CareerBuilder, our next step is to actually go to the colleges and get these kids even before they graduate.
Q: How do you grow a company?
You have to figure what you are strong at and what you aren’t strong at, as far as your personal skills. I truly believe I have to have creativity to come up with new ideas.
You have to have a process in mind to be able to, if you have this idea, how are you going to be able to implement it? Then you have to have the ability to convey that idea to your employees and convince them of it. You have to understand who you are and what you are capable of, and be real about it.
HOW TO REACH: CMR Construction & Roofing LLC, (866) 424-5435 or www.cmrconstruction.com