SaskatchChaptMay14EmergRisks
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Transcript of SaskatchChaptMay14EmergRisks
Chris Mandel
SVP, Strategic Solutions
Sedgwick
RIMS Saskatchewan Chapter
May 15, 2014
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
2
Speaker Contact Information
Chris Mandel. RF. CPCU, ARM SVP, Strategic Solutions Sedgwick, Inc. [email protected]
210-845-5804
Sedgwick © 2013 Confidential – Do not disclose or distribute. 3
A Broad and Fuzzy Paradigm
“There are known knowns. These are things that
we know that we know. There are known
unknowns. That is to say, there are things we
know we don’t know, but there are also
unknown unknowns. These are things we don’t
know we don’t know.”
- Donald Rumsfeld, U.S. Sec of Defense (2002)
WHILE THE RISKS LESS UNDERSTOOD ARE DIFFICULT TO ADDRESS, THEY ARE OFTEN SO SUBSTANTIAL IN IMPACT, THEY CAN’T BE IGNORED
Copyright Excellence in Risk Management, LLC ERM, LLC 2013
Sedgwick © 2013 Confidential – Do not disclose or distribute. 4
What is an Emerging Risk?
Those issues hat have not manifested themselves sufficiently to be
managed using the tools commonly applied to more developed
exposures. They are “those risks an organization has not yet
recognized or those which are known to exist, but are not well
understood
RIMS’ “Emerging Risks and ERM
A condition, situation or trend that could significantly impact the
Company’s financial strength, competitive position or reputation within
the next 5 years. Emerging risks involve a high degree of uncertainty.
It is unclear where an emerging risk will land on the loss curve.
Anonymous actuary
Sedgwick © 2013 Confidential – Do not disclose or distribute. 5
Other Definitions
Lloyds: An issue that is perceived to be potentially significant but
which may not be fully understood or allowed for in insurance terms
and conditions, pricing, reserving or capital setting.
PWC: Those large scale events or circumstances beyond one’s direct
capacity to control, that impact in ways difficult to imagine today.
S&P: Risks that do not currently exist.
What about black swans?
Global ERM Survey
Key Findings
• Board level commitment critical to decision making and driving value
• Dedicated senior executive to drive and facilitate
• ERM culture encouraging full engagement and accountability at all
levels
• Stakeholder engagement in RM strategy development and policy
setting
• Transparency in risk communications
• Integration of financial and operational risk data into decision making
• Need for sophisticated quantification to understand risk and
demonstrate value proposition
• ID of new and emerging risks using internal and external data sources
• Move from avoidance and mitigation to leveraging options for value
Source: Aon Corporation 2010 6
The discipline of risk management has
evolved from strictly a value preservation-
based focus to a balanced focus between
protecting assets and creating or enhancing
value.
Operating
Risk
Credit Risk
Model Risk
Entrepreneurial
Risk
Regulatory
Compliance Risk
Future/White
Space
•Target Models (3B); Lifetime Value Models
•Churn Models; Discount Engine Models
•Upsell Models; Sales Territory Models
•Public Relations & Marketing Initiatives
•Industry Coalitions
•Client/CPA Webinars
•EDI Program
•RCX Stale Date Fees
•Taxpay Premium Processing Fee
•Federal Deposit Frequency Program
•Client Penalty Abatement Service
•IRS/Paychex Partnerships
•$100M Revenue Over Past 5 Years
•EGTRRA Restatement
•PBS, HRO, 401(k) Service Fees
Risk Management
A flexible and dynamic risk management
discipline is uniquely positioned to quickly adapt to change and identify opportunistic
risk to create new streams of revenue and
increase value
Value Preservation to Value Creation
A VIEW INTO EMERGING RISKS IS CRITICAL TO THE VALUE FOCUS
RIMS Risk Maturity Model
Root Cause Discipline
Degree of discipline applied to measuring root cause by: 1) determining sources 2) understanding impacts 3) identifying trends, and 4) measuring effectiveness of ontrols .
Risk Appetite Management
Degree of accountability for (1) defining acceptable boundaries 2) calculating and articulating risk tolerance 3) developing a risk portfolio 4) considering scenarios, and 5) attacking gaps between perceived and actual
risks.
ERM Process Management Degree that a repeatable and scalable risk management process is integrated into business and
resource/support units, using a sequential series of steps that support uncertainty reduction and promote opportunity exploitation.
Adopt ERM Approach
Denotes the degree of executive support for an ERM-based approach within the corporate culture. Activities cut across all processes, functions, business lines, roles and geographies.
Copyright © 2010 Risk and Insurance Management Society, Inc. All rights reserved. 8
Business Resiliency and Sustainability
Extent to which an organization integrates business resiliency and sustainability aspects for its operational planning into its ERM process.
Performance Management
Degree to which organizations are able to execute on vision and strategy in tandem with risk management activities.
Uncovering Risks UNCOVERING RISKS
Degree of quality and coverage (penetration) throughout the organization for uncovering uncertainties related to organizational
goals achievement.
RIMS Risk Maturity Model
Copyright © 2010 Risk and Insurance Management Society, Inc. All rights reserved. 9
Sedgwick © 2013 Confidential – Do not disclose or distribute. 10
The Opportunity for Risk Managers
Uncover the unknown or poorly understood
threats to businesses
Bringing resources to bear to address the risks
efficiently
Building resiliency and sustainability
Leveraging risks that lend themselves to
exploitation
Leveraging emerging risk processes for
competitive advantage
Sedgwick © 2013 Confidential – Do not disclose or distribute. 11
High Level Risk Types
Strategic
• Acquisitions • Business Model • Competition • Demographic
Changes • Disruptive
innovation • Market • Etc.
Operational
• Customer service • Infrastructure • Processes • System capabilities • Talent • Etc.
Financial
• Capital • Cash flow • Credit • Debt obligations • Foreign exchange • Liquidity
• Etc.
External
• Economy • Environment • Geopolitical • Regulatory • Tax policies • Weather events
• Etc.
Do Some Risks Matter More?
12
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Macro-level Categories to Consider
Environmental
Systemic
Cultural
Technological
Societal
Geopolitical
Economic
Sedgwick © 2013 Confidential – Do not disclose or distribute. 14
Emerging Risk Identification Tactics
Surveys/Questionnaires
Financial Statements
Records and Files
Flowcharts
Personal Inspection
Industry Check Lists
Events
Experts/Delphi Type Methods
Environmental Scanning
Scenario Analysis
Trend Analysis
Risk Management Stakeholders
Key Focus
Targeted Outcome
Emerging Risk Management Process
Enterprise Risk Management
Risk Process Effectiveness
Identification and Management of Significant Risks
Process Efficiency
Process Efficiency
Effective & Efficient Process Execution
Internal Audit
Control Testing
Effective
Controls
Compliance
Compliance Risks
Regulatory Compliance
Controller
Financial Reporting
Sox 404 Compliance
Business Units
Business Performance
Controlling Risks to as well as Meeting
Objectives
Unified Strategy
15
Sedgwick © 2013 Confidential – Do not disclose or distribute. 16
Best Practices for ID and Assessment
Conduct emerging risk reviews
Integrate or align ER reviews with the planning processs(es)
Drive agreement on key assumptions and test them with rigor
Challenge conventional thought processes and the status quo
Apply the right methods to better understand and predict ERs
Balance an internal vs external environmental view
Manage ERs within the risk appetite and tolerances of your firm Adapted from RIMS’ Emerging Risks and ERM Report (2012)
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
18
Healthcare
Aging workforce
Rising medical costs
• Pharmaceuticals
Affordable Care Act (ACA) aka ObamaCare
Wellness programs
• Discounted health care costs/employee contribution
Changing employee demographics
• Ethnic
• Age/Sex/Skills
• Priorities
• Cultural shift
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
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Workforce issues - talent attraction and retention
Baby boomers retiring – 10,000 baby boomers a day have been turning 65 since 1/1/11 and will continue until 2030
• Smaller future workforce
Future workforce will be very technology savvy
Future workforce will be more demanding
• Telecommuting
• Flexible hours, etc.
Work/life integration vs. balance
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
20
Emerging claim challenges
Impact of Affordable Care Act
Legalized marijuana
• Drug test issues
Gay marriages and domestic partnerships
Increasing proportion of fraud
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
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Emerging claim challenges
Use of electronic devices while driving
• Mobile phone use
• Hands-free
• Texting
• GPS
Natural disasters
• High variability of CAT events
• Super Storm Sandy
• CAT modeling Change Impact
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
22
Technology
Legacy systems
IT security
Cyber issues
• Identity theft
• Malware
• Business interruption
• Target >>>>>>>>>>>>>>>
Sedgwick © 2013 Confidential – Do not disclose or distribute. 23
Target as an Emerging Risk Poster-child?
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Emerging Risks in a Strategic Context
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Identifying emerging risks
Rating emerging risks on relevance, importance and uncertainty
Monitoring impact of and reporting on emerging risks
Emerging Risks in a Strategic Context
Copyright © 2010 Risk and Insurance Management Society, Inc. All rights reserved.
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Traits of Emerging Risks
Emerging Risks
High Level of Uncertainty
Lack of Consensus
Uncertain relevance
Difficult to Communicate
Difficult to Assign
Ownership
Systemic or “business practice”
issues
Source: RIMS Executive Report Emerging Risks and Enterprise Risk Management © 2010 RIMS
Scanning the External Environment
Interviews
External Scanning
Importance Relevance Probability Immediacy Impact Level of
Uncertainty
Emerging Risk [Periodic] Report Trend/Event Implications
Strategic Directions Key
Indicators Owner Plan Threshold
Warnings Monitoring
Future Focused Emerging Risk Scanning
MACRO MICRO
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Copyright © 2010 Risk and Insurance Management Society, Inc. All rights reserved.
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Scoping the External Environment
ORGANIZATION SPECIFIC
Clients Customers Vendors/Supply
Chain Distributors
MICRO/INDUSTRY
Direct Competitors
Indirect Competitors
Markets Sectors Analysts Strategic Alliances
MACRO
Cultural/Social Technological Economic Environmental Political/Legal
Regulatory Strategic Planning
Operations
External Scanning
Copyright © 2010 Risk and Insurance Management Society, Inc. All rights reserved.
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Using Scenarios for the Most Uncertain Risks
Scenario 1: Protectionism
Scenario 2: Oil Prices
Scenario 3: “Green”
movement
Objective Example: Global Expansion
Consider potential consequences if scenario plays out
Select leading
indicators and signposts
Copyright © 2010 Risk and Insurance Management Society, Inc. All rights reserved.
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
30
3 Keys to Success
Separate the Emerging Risks Processes: Emerging risks are fundamentally different than more internal/short-term/operational risks, and many companies recognize the need for a separate, more qualitative and creative process (often led by dedicated committees or teams) for identifying and managing emerging risks.
Rely on SMEs: ERM teams often bring in individuals with a specialist-level understanding of particular external/macroeconomic trends, using them to help create scenarios, assess the likely direction of trends and measure the potential magnitude of their impact on the enterprise.
Use Robust Scenario Planning: Due to their longer-term nature, major external emerging risks require an effective scenario planning process to build confidence that their impact has been correctly assessed.
Emerging Risk Process Summary
Integrate into ERM Strategy
Identify Emerging Risk Relative to Goals & Objectives
Assess Risk Interconnectedness & Determine Appropriate Responses
Monitor and Report Leveraging KRIs tied to KPIs
Sedgwick © 2012 Confidential – Do not disclose or distribute.
www.sedgwick.com
Copyright © 2013 by Sedgwick - Confidential – Do not disclose or distribute.
Copyright © 2013 by The Hartford. Confidential. All rights reserved. No part of this document may be reproduced, published or posted without the permission of The Hartford.
33
Speaker Contact Information
Chris Mandel. RF. CPCU, ARM SVP, Strategic Solutions Sedgwick, Inc. [email protected]
210-845-5804
Christopher E. Mandel, RF, CPCU, ARM SVP, Strategic Solutions, Sedgwick, Inc.
Christopher E. Mandel is the SVP for Strategic Solutions at Sedgwick, Inc. He is engaged in helping Sedgwick chart its future through the long term planning for products, services and strategic solutions for this claims and productivity management firm. He is also co-founder and EVP, Professional Services for rPM3 Solutions, LLC as well as founder and president of Excellence in Risk Management, LLC. both independent consulting firms specializing in governance, risk and compliance, with a special emphasis on enterprise risk management. rPM3 Solutions holds a patent for a unique risk measurement process known as ARQ™. Prior to electing early retirement and for ten years from 2001-2010, Mr. Mandel was head of enterprise risk management for USAA Group, a $165 billion diversified financial services organization. At USAA, he designed, developed and led the enterprise-wide risk management and corporate insurance centers of excellence. He also served as President and Vice Chairman, Enterprise Indemnity CIC, Inc., an Arizona based alternative risk financing facility.
Mr. Mandel has more than 25 years of experience in risk management and insurance in large, global corporates. He has pioneered the development of cross-enterprise risk management capabilities resulting in S&P rating USAA as “excellent and a leader in ERM” from 2006 through 2010. In 2007, Treasury and Risk Magazine bestowed the Alexander Hamilton Award for “Excellence in ERM” on USAA. Mr. Mandel has been a long term senior leader in the Risk and Insurance Management Society including being elected President and Chief Risk Officer and was named Risk Manager of the Year in 2004.
Mr. Mandel’s deep, wide and diverse experience in all facets of risk management and insurance allows him to offer those interested in managing risk with excellence to engage him to provide everything from a comprehensive strategy and complete ERM framework to targeted guidance, tools, techniques and/or training. Mr. Mandel’s innovative approach to making risk a key strategically placed and results oriented function results from solidly connecting risk management outputs to a company’s key performance metrics and ultimately, mission accomplishment.
Mr. Mandel received his B.S. in Business Management from Virginia Polytechnic Institute and State University and an MBA in finance from George Mason University. He holds the CCSA, CPCU, ARM and AIC designations and is a frequent industry speaker, teacher and writer. He writes the “Risk Innovation” column for Risk and Insurance magazine and in 2008 was elected a member of Risk Who’s Who (RWW). He also wrote the Ask a Risk Manager column for Business Insurance from 1996 through 2008.
CONTACT: [email protected] 210-698-8056 o 210-845-5804 m https://www.sedgwick.com
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Sedgwick © 2013 Confidential – Do not disclose or distribute. 35
Sedgwick, Inc.
The leader in innovative claims and productivity
management solutions
Sedgwick Claims Management Services, Inc. is the leading North American provider of
innovative claims and productivity management solutions. Sedgwick and its affiliated
companies deliver cost-effective claims, productivity, managed care, risk consulting, and
other services to clients through the expertise of more than 10,000 colleagues in 195
offices located in the U.S. and Canada. The company specializes in workers’
compensation; disability, FMLA and other employee absence; managed care; general,
automobile and professional liability; warranty and credit card claims services; fraud and
investigation; structured settlements; and Medicare compliance solutions. Sedgwick and
its affiliates design and implement customized programs based on proven practices and
advanced technology that exceed client expectations. For eight years in a row, Sedgwick
has been awarded the distinguished Employer of Choice® certification, the only third-
party administrator (TPA) to receive this designation. In 2011 and 2012, the company
was named the Best Overall TPA by buyers of risk services through an independent
survey conducted by Business Insurance. For more see www.sedgwick.com.
© 2013, Sedgwick Claims Management Services, Inc. applies to all content except where otherwise noted