A publication of the Insurance Accounting & Systems Association

theInterpreter ®FALL 2012

Vol. LXXXIIIssue II

®

SocialMediaBeware the

IcebergFeature Story p. 12

Actuarial Acumen

Association News p. 24Leadership Development

p. 10

SpeciAl SectioN:Executive Education in Focus

columns departments

feature story

special section

8 President’s MessageEmbracing Mystery

9 From the Executive DirectorMalala’s Story

14 IFRS UpdateTo IFRS or Not To IFRS

16 The Trend Toward Self-ServiceR&D Priorities Driven by Industry Demands

4 Editorial Opinion

6 About IASA

6 Members Only Benefits

23 Association News• Career Skills Development Track Recap• National Volunteer Profile: Celeska Fredianelli• Leadership Development• Industry Pulse• Top Tech Trends from San Diego• Committee Spotlight: Marketing & Communications• The Lighter Side

12 ACTUARIAL ACUMEN: TIPS FOR EFFECTIVE GOVERNANCE OVER LOSS RESERVE VALUATIONIn today’s competitive business environment, effective corporate governance is paramount. Govern-ing insurance loss reserves (typically the largest liability on an insurance company’s balance sheet) requires management and the Board of Directors to understand key actuarial elements to interact efficiently with and govern the actuarial function. In fact, it is critical for directors and others charged with insurance company governance to understand loss reserve valuation and effectively navigate the actuarial reporting process.

15 EXECUTIVE EDUCATION IN FOCUSThe IASA Executive Education Program continues to evolve to serve the changing educational needs of insurance executives across the country and across the industry. Included in this special section of the Interpreter is extended coverage of recent Executive Education Program events, and details about what you can expect in the future.

cover story p. 10

Steve Callahan of the Robert E. Nolan Company believes social media has moved “from a fad to a deep-rooted part of the fabric of our society for not only business, but our personal lives as well.” In this article, he details the “arrival” of social media in terms of legitimate impact on our society as a whole and the insurance industry in particular. According to Callahan, “the final stamp of arrival was the October 3rd live streaming of the second presidential debate of the season on YouTube, marking a milestone similar in magnitude to the now-recognized impact of the first televised debates in the 1960s between John F. Kennedy and Richard Nixon.”

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SocialMediaBeware the

Iceberg

Social media has moved from a fad to a deep-rooted part of the fabric of our

society for not only business, but our personal lives as well. The final stamp of arrival was the October 3rd live streaming of the second presidential debate of the season on YouTube, marking a milestone similar in magnitude to the now-recognized impact of the first televised debates in the 1960s between John F. Kennedy and Richard Nixon.

So, in terms of social media, recent developments make asking “Where are we today?” extremely relevant and timely. Just consider:

• Over two-thirds (66 percent) of individuals in U.S. use social media, including over 50 percent of senior citizens, with 900 million plus on Facebook and approximately 140 million on Twitter.

• According to the Independent Insurance Agents of America (IIA), over 60 percent of independent agencies are using Facebook

and LinkedIn, primarily for lead generation, brand advertising and customer engagement.

• Nearly 80 percent of surveyed insurers are either already using, or are planning to very shortly start using, some form of social media, with 80 percent listing their number one concern as compliance.

• Over three-fourths (75 percent) of carriers involved in social media are actively monitoring their agents using customized software systems, while over two-thirds (66 percent) also require pre-approval of all content.

• Budgeting for 2013, over three-fourths (75 percent) of the companies surveyed will be increasing their investment in the use of social media.

Like the infamous iceberg, the issues surrounding social media run deep and far exceed the obvious surface level marketing and collaboration aspects getting all the attention, and the portion underwater is not only vast, but it can be deadly. Companies face an

entirely new assortment of risks, including reputational damage, First and Fourth Amendment suits, slander, defamation, misrepresentations, intellectual capital theft, data breaches, business interruption, human rights violations and invasion of privacy. And, each risk is amplified by employee and agent use of social media.

These days, it’s easy for a tweet to go viral and do immeasurable damage to a company’s reputation. Even a Facebook post can generate tens of thousands of “likes,” bringing negative attention to a decision. In essence, social media effectively internationalizes complaints. YouTube videos personalize issues and can translate across platforms to tweets and a Facebook page. Two very recent examples stand out:

• Progressive’s recent social media-driven settlement over the handling of Katie Fisher’s automated claim in August of this year, potentially setting the stage for future claims practices; and,

• Aetna’s reinstatement of Arijit Guha’s policy covering his cancer treatments after a barrage of reputation-harming tweets, creating an exception that could become a precedent.

According to Symantec’s 2011 State of Security Survey, social media ranked number two behind mobile computing on the list of “somewhat” or “extremely significant” industry trends affecting the security of IT. The World Economic Forum profiled the extent of the exposure by listing cyber security as one of the top five risks to watch along with demographic challenges and weapons of mass destruction in its 2011 Global Risks Report. No longer simply a marketing debate on whether or not there is adequate ROI, social media represents a significant business risk as well, with roughly 35 percent of businesses investing in cyber insurance as part of their risk management programs.

Managing exposures remains a complex and unclear process. There are many unresolved legal questions about balancing

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SocialMediaBeware theIceberg

by STEVEN M. CALLAHAN, CMC®

theInterpreter x www.iasa.org Fall 2012 11

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constitutional rights to free speech and privacy against a wealth of laws preventing damaging statements or actions by others. Open questions include:

• Can an employer be held liable for an employee or agent’s defamatory comment?

• Who is liable if damaging personal information about a customer, employee or agent is exposed on an employee or agent’s personal Facebook page?

• When do insurance carrier compliance guidelines apply to employee or agent postings or tweets?

• If a company is liable, how does it monitor its employees’ and agents’ private postings without violating their rights?

The total exposure is significant, crossing to employees’ personal lives, customer and ex-customer posts, and agents’ comments and pages. Wherever the company may be mentioned, usually outside of any control, there is the potential ripple effect throughout the social media community.

Recently, there have been a number of solutions put on the market that help companies monitor the social media space, as well as control what their agents or employees say or do – at least on work computers. Some of these tools are even able to measure the overall “sentiment” of the comments being made across the various social media platforms, giving the company a sense of how their brand is being viewed at a given point in time.

These same tools are used to generate exception alerts that escalate to a response team for handling, like when a legitimate complaint that should be addressed is tweeted or posted somewhere. However, the assumption that damaging comments will be directed to a company contact point is naïve. In fact, companies are constantly

being talked about across the Internet. Absent effective monitoring software, companies are unaware of all that is being said about them.

Even with good monitoring tools, a company must have well-established policies and practices, and staff trained on them both, so that any actions taken will be consistent with pre-approved and legitimized responses. This is reinforced by a strong social media policy, agreed to by all employees and agents, along with a well-prepared contingency plan for addressing the inevitable criticism – one that incorporates speedy response and rapid decision-making escalation. Industry best practices break down the steps to good risk management of social media as follows:

1. Identify the key players for managing and making decisions or recommendations on social media uses and policies, and make sure there is a senior executive with broad decision-making authority assigned to the team. This person must be able to make rapid decisions in time to handle sensitive emergencies.

2. Formally assess the organization’s social media activities, maturity, existing practices and policies, and disparate uses across the various departments, employees, and distribution channels. Identify the applicable laws and guidelines and engage expert counsel to review them with an eye toward how they apply to your business. Understanding the current state of the business and social media is critical to moving forward.

3. Evaluate social media insurance needs, making sure that there is adequate coverage for the various areas of risk, from downtime to being hacked to leaked personally-identifiable information (PII) to litigation. Note that commercial general

liability may not cover online activities, nor possibly cover cyber-attacks or extortion, data corruption, specific leaks, inadvertent defamation, privacy violations, or employee and agent actions.

4. Develop a social media strategy for the company and then build a comprehensive set of guidelines and policies that support it. These guidelines and policies will be integral to all departments, and will ensure a consistent set of practices enterprise-wide.

5. Train staff and field personnel on social media risks. Provide reminders and schedule refresher courses to ensure everyone is aware of, and watching for, any potential problems.

6. Designate responsibility for monitoring and responding to postings, tweets, and complaints. Also, ensure the team has a rapid response charter and a well-vetted plan of action. Quick, coherent and informative responses will help mitigate the damage and possibly even benefit the brand.

Social media remains unchartered waters in many ways, with unanswered questions and untested legal ground. Some of the challenges are deeply rooted in values and beliefs:

• What is an individual’s right to privacy when it comes to their personal accounts, friends,

and postings and at what point should it be accessible by society or a given business?

• What about free speech versus the perception of sharing proprietary information and damaging commentary? Are people not allowed to say what they want on their own personal media pages?

• When is a social media action by an employee on their time and equipment a terminable offense?

• Was a proper release obtained before using an outside investigative vendor? Does the information collected represent a consumer report under the Fair Credit Reporting Act (FCRA), requiring advance consent?

• Are adequate measures in place to ensure no discrimination, civil rights, Americans with Disabilities Act (ADA), or other regulated prohibitions are violated?

• Does all monitoring activity comply with state and federal privacy laws, including the Electronic Communications Privacy Act, and is it applied consistently and equitably?

Regardless of whether a company is using social media for marketing, customer service, or claims, the risks and exposure social media represents for reputation and profitability are significant and require continuous management. What is being said about your company, and what your employees and agents are saying, are not optional concerns. In fact, they are critical elements of growth and success. Make sure your company is addressing the rest of the iceberg before it’s too late.

Steven M. Callahan CMC© is a practice director for the Robert E. Nolan Company and a regular contributor to IASA’s Interpreter. He can be reached for further insights or comment via email at Steve_Callahan@RENolan.com.

‘‘ Even with good monitoring tools, a company must have well-established policies and practices, and staff trained on them both, so that any actions taken will be consistent with pre-approved and legitimized responses.”