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By Rick Vassar CPCU ARM

Author of the #1 Insurance Liability Book on Amazon.com Hide! Here Comes the Insurance Guy


CHICAGO, Dec 17, 2008 (BUSINESS WIRE) -- Fitch Ratings downgrades XL Capital Ltd (XL) and its property/casualty (re)insurance subsidiaries, including the Issuer Default Rating (IDR) for XL to ’BBB+’ from ’A’, and the Insurer Financial Strength (IFS) rating of its core operating companies to ’A’ from ’A+’. (See the full list below.) The ratings remain on Rating Watch Negative.

The rating action follows XL’s announcement that the company anticipates the estimated mark-to-market decline in its investment portfolio through November 2008 to be largely in line with the $1.1 billion of unrealized losses, other than temporary impairments and realized losses on sales the company incurred in the third quarter of 2008 and the $200 to $220 million in net investment fund affiliate losses from its alternative investment portfolio for the fourth quarter of 2008.

Rick Vassar’s insurance/Financial Interpretation – “Sorry, man, my bad…”

NEW YORK--Dec. 17, 2008--American International Group, Inc. (AIG) has issued the following statement regarding an article published today by Bloomberg:

"AIG reports all its derivatives at fair value in accordance with US GAAP including AIGFP’s credit derivative portfolios. In accordance with US GAAP, in its determination of fair value for its credit derivatives, AIG considers all available information including but not limited to market available data, dealer provided prices, prices used for collateral posting and recent trades including early terminations initiated by counterparties. In evaluating fair value for its Regulatory Capital portfolio, AIG also considers factors relating to the individual underlying portfolios including, but not limited to, asset type and seasoning, default history, loss history and attachment point.

"AIG has clearly described its valuation approach including key assumptions used for AIGFP’s super senior credit default swap portfolio in its Form 10-Q for the quarter ended September 30, 2008."


Rick Vassar’s Insurance/Financial Interpretation:

“Face it. You [screwed] up! You trusted us.”

-Eric ‘Otter’ Stratton from the motion picture Animal House (1978)



I have been asked on numerous occasions in the past few months how this could happen to a big insurance company like AIG.

Why are they investing money in sub-prime mortgages?

How could they not see this coming?

You see, the general public believes that insurance is quite a simple process. You charge premiums, you pay claims, and you keep the money that’s left over.

It’s sort of like that, except that there’s one component left out. The insurance companies charge premium, put some of it aside to pay claims, and invest the rest. The insurance industry as a whole loses money on the spread of premium to losses, but makes it up handsomely on the investment returns. The industry has been doing this for hundreds of years.

So what’s the problem, Rick?

The problem was outlined in my book Hide! Here Comes the Insurance Guy in early 2006:

“I believe there was a watershed decision made in 1999 that should have put the debate of the hard market to rest. In that year, Congress passed the Financial Services Modernization (Gramm-Leach-Bliley) Act. This act allowed, for the first time, banks to offer insurance products and for insurers to offer banking services through holding companies. This created a synergy between the two industries which allowed both to tap into their customer bases and mine business from the other industry. Banks and insurance companies could offer their clients a one-stop alternative for both insurance and banking.

The result was an increase in competition in the marketplace, which led to consolidation of companies that were too weak to compete in the more dynamic market. The increased competition increased supply for a fairly stable demand, reducing the prices in the marketplace. The increased competition also caused some weaker insurers to lower their qualifications for coverage, which weakened their overall book of business and made them susceptible to the vagaries of the free market. At the same time, it provided a need for coverage in the secondary market that was not being fulfilled at a reasonable price.”

In other words, instead of insurers going to the bank to invest their money, they became the bank. Insurers found that by going to themselves to invest their money to be much easier and much more profitable.

I mean, who is going to ask questions of you if you are borrowing from you.

Sarbanes-Oxley only expanded the problem, because the transactions were being reported. No one understood the investments, but they were being reported. And don’t worry, it’s mostly our money.

Then, the bottom falls out, and the bank turns back into an insurance company and tells us that they don’t know what these swaps and stuff are all about, because this isn’t our core area of expertise.

Exactly.

One needs to look only at the insurance industry’s combined ratio, which is the percentage of each premium dollar a property/casualty insurer spends on claims and expenses. The industry average has been hovering around 102%, which means for every $100 collected in premium, $102 is paid out in claims and expenses.

The combined ratio is conservatively estimated to be around 104% in 2008, with some experts saying that it could be as high as 108%.

So, what has this taught us?

Insurers began to rely on investment income to offset poor premium pricing and underwriting decisions in reaction to increased competition brought about after Gramm-Leach-Bliley. Insurers lowered qualifications to bring in more income to invest. Once claims cost began to rise due to poor underwriting, there was more pressure on the investment side to make up the difference.
The pressure for increased investment income led to lower standards in the underwriting of investments. The greater the risk, the greater the return, unless the bottom falls out
If there is transparency in financial transactions that no one understands, are they really transparent? SarBox gives the impression of accountability without accountability, which is okay, unless the bottom falls out.

It makes me chuckle to hear insurers tell me that the insurers are actually in good shape. My question is: How good would they be if that $100 billion or so didn’t come to the rescue? The insurance subsidiaries are being kept alive to sell off from the banks – I mean holding companies.

Let’s go back to banks being banks and insurers selling insurance. When they’re apart, they work pretty well. When they got together, it was real good for awhile. Premiums came down, insurance was available, investments were plentiful. When the bottom fell out, the fall was swift and severe, and there was no place to go.

Too good to be true is all well and good, unless the bottom falls out.

By Rick Vassar CPCU ARM


We’ve all heard the children’s story about the emperor and his new suit. The emperor ordered some clothes from some con men that had passed themselves off as weavers. These grifters convinced the king and his court that the clothes were “made of material that possessed the wonderful quality of being invisible to any man who was unfit for his office or unpardonably stupid.”

So, they pretend to dress the emperor, and as he stands there naked, all of his advisors and associates begin to comment on the beauty of the suit, since each feared that not being able to see this beauty would validate his unworthiness for his high position.

As each of the emperor’s confidantes spoke glowingly about the clothes, the emperor began to believe that he could be seen as unfit for his high place because he could not see the suit. As he stands there naked, he makes a really bad decision:

Hey — let’s have a parade so I can show off these wonderfully beautiful clothes!

So he parades through the street, and all marvel at the exquisite suit of clothes, until a small child calls out, “But he has nothing on.…” The crowd begins to chant this as well, while the emperor lifts his head higher and the chamberlains proudly hold higher the emperor’s nonexistent train.

What does this tale have to do with risk management and the current financial crisis? Read on.

The Rise of Enterprise Risk Management

The enterprise risk management (ERM) movement began to take hold of the risk management and financial community following two significant events shortly after the turn of the century. These events set the stage for the risk management community to step forward and make itself known to the business community as a vital element of the financial system, necessary to protect the assets of the organization.

The Attacks of September 11, 2001

In 2001, the attacks of September 11 forced businesses, governmental entities, and the general public to take a serious look at the risks they faced on a daily basis. On any given day, the walls could literally fall down, and life as we know it can be changed forever. After September 11, all of the securities we took for granted needed to be reevaluated. Our personal, financial, and infrastructural security all took a hit that day, and businesses were forced to look at risk as an important factor affecting the continuity of business activities as well as factors that could result in the actual demise of the entire organization.


Survivors Faced a Hardening Insurance Market

Some businesses failed. Ones that survived faced a hardening insurance market, a market in which insurers used the events of September 11 to divest themselves of risks they had taken on after the Gramm-Leach-Bliley Act of 1999 opened up the insurance markets to financial institutions that flooded the market with an increased supply of insurance choices while demand stayed fairly stable.

When the United States was attacked, the financial chaos that ensued gave the insurance industry the opportunity to tighten its underwriting requirements. The policies that were written for less favorable risks from 1999–2002 were summarily dropped, and those businesses that did not lose their coverage faced renewal increases as high as 150 percent.

Sarbanes-Oxley Act of 2002

In the early 2000s, the increase in defined contribution retirement plans and 401(k) plans flooded Wall Street with funds from smaller investors, and it became apparent to some that publicly traded companies needed to be more accountable to protect these small investors who were completely detached from the management of the organization.

On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act, after it was overwhelmingly approved by both the U.S. Senate and the House of Representatives. Sarbanes-Oxley set up strict financial and accountability standards for publicly traded companies. Coming on the heels of corporate accounting scandals at large companies such as Enron and Adelphia, the Act set a uniform standard for financial accountability to ensure that the assets of an organization and, therefore, the interests of stockholders would be protected.

The accounting standards, along with the civil and criminal penalties for noncompliance, set the stage for a codified infrastructure not only for publicly traded companies, but also for those companies that aspire to evolve from private ownership. To do so, these private firms would need to prove that they could withstand the scrutiny imposed by Sarbanes-Oxley before “going public."

An Opportunity Lost

The risk management community had success all laid out for them, and it cannot be denied that risk management is much more visible today than when I started in the discipline over twenty 20 years ago. Instead of being able to grasp the opportunity presented, the ERM profession is mired in uncertainty that stems from an inability to define itself in the business community. In fact, if you polled 100 risk managers and asked them the difference between traditional risk management and enterprise risk management, you would come up with at least 90 different answers, if not more.

The culmination of this lack of clarity was the publication by the Risk and Insurance Management Society (RIMS) of Enterprise Risk Management for Dummies, in an attempt to explain ERM to its own members. In fact, the book was given free to all members of RIMS in 2007 and is given to all new members who have enrolled since April 2007.

And Here Is Where the Emperor and His New Suit Come In:

Why is it so difficult to distinguish the difference between traditional risk management and enterprise risk management? Because they’re the same thing! The emperor has no new suit.


Why the ERM Initiative Will Not Work

Enterprise risk management collapses under the weight of its own expectations and the expectations of the risk management community. I cannot see ERM as anything other than a repackaging of traditional risk management practices. It is an attempt to market risk management to the business community, and the business community sees right through it.

Here’s why enterprise risk management will not work in its present state.

1. The inability to adequately define ERM — There is very little to distinguish ERM from traditional practices. Why, then, do we choose to call it something else?

2. Loss of focus — Sarbanes-Oxley defines a process for financial accountability. If there is one major difference between ERM and traditional risk management, it is ERM’s focus on risk financing as the primary vehicle for success. Any good businessperson will tell you that only when you control your losses can you control your bottom line.

3. The risk manager’s accountability standard — An organization’s appetite for risk should not be a green light for a risk manager to try a risk financing option that may not be in the overall best interest of the company. Most companies, once they become comfortable that their risk management staff knows what they are doing, will lean heavily on the expertise on that staff, and the risk manager needs to fight the power and ego that go along with that level of comfort.

4. Credibility in the insurance community — Like it or not, the major role of the contemporary risk management department is the purchase of insurance. Yet, ERM, with all of its emphasis on the risk financing aspect of risk management, downplays the need for insurance expertise. This is foolish. A risk manager who leans on a broker for insurance expertise instead of leaning on him or her to teach the manager about the insurance process will not serve the organization well. A risk manager needs to need to know what he or she is buying, and more importantly, what the insurance industry is selling.

5. Where risk management resides in the organizational chart — In smaller companies, risk management has to fight to be considered a full-time job. In larger entities, the challenge is to elevate risk management to a board position (chief risk officer [CRO]). Risk management is neither a parttime job nor a board level position, and any attempt to sell it as more than an executive-level position diminishes credibility in the business community.

How ERM Can Work

The ERM concept is not a total loss. Here are some suggestions to make it work.

1. Return to risk management roots — Get back to the basics. The traditional model of identifying, analyzing, examining, selecting, implementing, and monitoring has worked really well in many ways; this process should remain the core of any risk management program. Completely changing the focus, the approach, and the model without fully defining the plan is — well — poor risk management.

2. Adjust the focus — Enterprise risk management focuses primarily on risk financing as the core tool to risk management success. Yet, if you have been in this line of work for a period of time, you know that the best way to reduce costs is to reduce the frequency and severity of losses through solid risk control techniques. If your organization will commit resources to safety initiatives, employee screening, and customer qualification, you will create an environment for business success AND save money on insurance costs. You can’t get creative with risk financing unless you have proper risk control techniques to mitigate the losses you are self-insuring. Risk control always comes before creative risk financing, and Sarbanes-Oxley does not change that.

3. Define the profession — In the minds of many in the business community, risk management is not a full-time job. This perception must change. It is not a part-time job, nor is it a board position. Increase the responsibilities of the risk manager, perhaps to include an expanded role into benefits management. In a smaller organization, this would sell the position as a true management position; if you hire a risk manager, you get a benefits expert as well. In a larger company, the risk manager would take on a more strategic role, and the position can be elevated to an executive level position.

The risk management community should focus on promoting the risk manager position as being, at the very least, a management position, and at the most, an executive-level position. This will allow the business community to better define the role and to make better use of risk managers when they are hired. I believe the risk management profession loses the most talent within the first six months of new risk managers’ careers — not because risk management is a bad job or profession, but because most new risk managers don’t know what to do when they get the job, and the companies who hired them don’t know what to do with them once they’re there.

4. Learn the insurance business — Regardless of any evidence presented to the contrary, risk management's primary responsibility is to purchase and maintain insurance. Why do I say this? When a major loss occurs in any organization I have been involved in, the bosses do not come around and ask if we did all we can do to mitigate this loss using solid risk control and risk financing techniques. No, it’s always the same three words: “Are we covered?” You can save all the money in the world on premium and creative financing, but you always want to make sure that when a loss occurs, the organization is aware ahead of time of the ramifications of such a loss. To do so, you need to learn about what you are purchasing. It is only then that you can determine if what you are buying is really what you need.

5. Get more involved in the insurance purchasing process — Did you know that the insured that uses a broker is not even considered a party in the insurance purchasing process? In this process, the underwriter is the seller and the broker is the buyer. The insured is merely the financing source, and the underwriting process is a financial capacity evaluation in which the underwriter determines the insured’s capacity to pay and the amounts the insurer will potentially pay out to settle and administer losses. If you as risk manager fail to interject yourself into the process, you will find that the lack of communication will lead to higher costs. To get involved, though, you need to understand the language, the process, and the goals of each of the players.

6. It’s all about the business — The number one piece of advice I can give risk managers is to learn how business works. Then learn how your business works, and adapt your program to that business. It is the job of others within the organization to make the ultimate business decisions. It is the risk manager’s responsibility to make sure that those making the decisions have all of the information they need from your area of responsibility to make those decisions. If the decisions made are not what you would have done, bite down hard and ensure that the organization is protected. If you provide the best information, and the company decides to go down a slippery slope anyway, management will not come back and tell you that you were right. The question will be “Are we covered?”

Conclusion

I firmly believe that enterprise risk management can be saved, but only if there is a commitment to return to the traditional roots of risk management. The emperor continued to believe in spite of overwhelming evidence to the contrary. When the small child yelled out that the emperor had on no clothes, the emperor and his men stood taller, as if the ignorance of the crowd outweighed any and all common sense.

It’s the same with risk management. ERM can work, but not until it can be defined. In the meantime, let’s step back and see if we can marry the two approaches: traditional risk management with its risk control focus, and ERM with its risk financing core. This will advance the discipline and bring the profession the respect it desires and deserves.

Until then, remember:

Listen to the child — the child is right.

Vassar Joins Volkswagen Group of America

BY MATTHEW BRODSKY
Risk and Insurance Magazine
May 14, 2008
Reprinted with permission

Rick Vassar was watching Hootie & the Blowfish jam at this year's RIMS conference, and what captured his attention was not the band resurrecting its hits from the '90s.


It was how the floor in the San Diego Convention Center undulated with the carefree dancing, stomping and stumbling of the hundreds of revelers at the show.


"How much would they get sued," Vassar remembers wondering, should the floor collapse.


Chances are, considering their astute, wry nature, many other risk managers in the hopped-up Hootie audience that night had a similar thought.


But this observation is not why we're writing about Vassar. In April, he started work as risk manager for Volkswagen Group of America Inc. That's why.


"I couldn't have scripted it any better," he said about his new gig. He now works a mere 10 miles from his home in the Washington, D.C, area. It's a chance to do good things at a big company. And it gets him back to working in the automotive business, where Vassar got his start.


Turning 50 this June, Vassar first found himself in risk management back in 1986--in car rental claims at Thrifty. Three years later, he would become risk manager for the company.


It was fast success, an indication of things to come. Yet at the time, Vassar admitted, even though he knew he was good at risk management, he wasn't digging it.


Not until he found his passion for it, in education.


Then, he said, his profession became "more than just an opportunity, more than just a paycheck--a passion to try to impact the way people think about risk management."


His goal has been to try to humanize risk management to corporate, to communicate to the C-suite what risk managers should be tasked to do. He said that most people in business see risk management as a mystery that doesn't fit into their organizational charts.


"It's become a goal of mine to educate and enlighten companies that you can save money, lots of money," he said, through smart insurance buying, loss control, safety and everything else that a risk manager can provide.


Gone should be the day that bosses single out a victim in finance or legal and damn them to become the company "risk manager" ... without training ... a week before renewals.


Of course, Vassar also has set out to educate the other side of the equation: risk managers themselves.


"It's up to the risk manager to determine their place in the organization," he said, adding that it can be a difficult and tense transition. Risk managers are not the "rainmakers" in any organization, after all. They typically do not generate revenue. Risk managers can save, and that's their way of making money for their organizations, he said.


Of course, much of Vassar's sentiment is also shared by other risk managers. Besides "Only Want to Be With You" and "Hold My Hand," risk managers at RIMS also heard a very similar message from their leaders and session speakers: Risk managers should recognize, and act upon, their importance to their corporation.


But Vassar feels so strongly about the subject that he wrote the book on it--literally--a paperback titled Hide! Here Comes the Insurance Guy. Originally self-published in 2006, the title has been picked up by book printer.


Which brings us back to his new job.


The subject of his book happened to come up during the interview with VW, and he just happened to have a copy in his briefcase.


"The book lent credibility to my experience and education," Vassar said. "They were looking for someone who could come in and roll their sleeves up and get started."


Vassar might have to roll up his sleeves, loosen his tie and eat his Wheaties for his new job. He has decades of experience--he worked with Thrifty through 2002, then became head of risk management for 200-employee Valcourt Building Services--but Volkswagon of America is a higher gear. VW is the fourth largest automaker on the planet with more than 325,000 employees worldwide and 1,400 in the States. It has a global risk management department with input over the U.S. program, as well as a global insurance program with which certain U.S. coverages must be integrated. Meanwhile, the company is in the process of relocating its headquarters, placing a new plant somewhere stateside and gearing up for a big push into the U.S. market that will see it sell 1 million vehicles by 2018.


When asked about longer hours and more stress, Vassar grins. "It's going to be a challenge."


One that he's confident he can tackle and pin to the ground. He cited his experience working in auto fleet and in claims at Thrifty, which was only broadened with his work at Valcourt. At the building management company, he had to be ahead of the game. A lot of the company's projects involved men hanging off buildings--think window-washing--so when a claim drifted his way, it was bad. The goal was to prevent them, not deal with their aftermath.


With his experience and VW's expectations, his hiring is a "good marriage," Vassar said.


"They have made a commitment to risk management," he said. "They do view risk management from an enterprise standpoint."


Not to mention the automaker's dynamic and employee-oriented environment.


"I think they're a moving force in the United States. It's my goal to make a lifelong commitment to VW," he said. "I would love to finish my career with VW."


MATTHEW BRODSKY is senior editor/Web editor at Risk & Insurance®.




May 14, 2008

Copyright 2008© LRP Publications

You’ve seen those guys. They’re the ones who are hanging from the side of a building washing windows. You probably pay them very little mind, unless they have cordoned off the area below you where you usually go down and grab a smoke.

More often than not, you probably look up and wonder how anyone can wake up each morning and hang off buildings like that. I know I do. I am responsible for risk management and insurance for the largest commercial window cleaning company in the United States.

Each day, our company faces the fear that one of our guys will get severely injured. And while you perhaps think of these guys as an inconvenience, they are fathers, mothers, sons, daughters, brothers and sisters.

Window cleaners are much like firefighters and policemen: a fraternity of the few, who know what they do is dangerous yet essential. Window cleaning is not only aesthetic; it also helps to extend the physical life of the building by cleaning off the elements that accumulate on surfaces, especially in urban areas.

As I sit here watching a window cleaner hanging just outside my eleventh floor office window, I am thinking about the window cleaner in New York who fell 47 stories from a swing scaffold and survived. His brother was killed, but somehow, Alcides Moreno lived. It is not exactly clear what happened that day in December, 2007, but after that swing scaffold hit the ground from 500 feet above, Alcides Moreno had survived and his brother Edgar had not, and one thing is absolutely clear: the survival and bright prognosis for recovery for Alcides Moreno is nothing short of a miracle.

Early indications are that it was human error, mechanical failure, structural failure, or a combination of all three. The reports indicate that the Morenos were not hooked up to a safety line, which would have saved them. There were new cables on the scaffold that may or may not have been properly installed. And it’s also possible that the scaffold was not properly anchored to the building.

It is also believed that this suspended scaffold’s design required that the occupant’s safety lines be attached to the scaffold instead of an independent safety line. Most suspended platform protocols call for safety lines to be hooked up to an independent line attached to the building.

Many buildings, especially the older ones, are not properly equipped to safely secure weight off the side of the roof. Oftentimes, window cleaners have to find innovative ways to secure their lines to their chairs or scaffolds to perform the work safely.

Sometimes, these anchor points are not structurally sound enough to hold the weight of the platform and its occupants.

What most people don’t know is that most buildings can be retrofitted with anchors that protect the structural integrity of the building while safely allowing work in areas that can only be accessed from above. Many property owners look at retrofitting as cost-prohibitive, but insurance cost savings over a relatively short period of time will more than cover the costs of anchor installation.

In 2004, I attended a safety training session for our company in Atlanta. Each crew not only practices safety techniques, but also trains on rescue scenarios. If something goes wrong 20, 30, or 40 stories up, crew members can only rely on each other, and these guys are the best.

When I joined this company, I had consistently stated that I would like to try a drop. But when the day came, even two stories seemed awfully high, so I decided not to ask to rappel down the side of the building.

One of the managers called my bluff. So I climbed up a very long ladder to the top of the two-story warehouse, and started to have second thoughts:

I’m an office guy. I don’t need to do this…

Then I looked down at the ladder and decided it would be a lot less stressful to go down by rope than to go back down that ladder.

So I went down by rope. I would prefer never to have to do that again. I probably will, though, because from 30 minutes of preparation, and the three to five minutes it took to slide down two stories, I came away with an incredible degree of respect and admiration for the people who do this every day, from heights much higher than I experienced.

They put their lives on the line for the noblest of causes – supporting their families. So, if their work interrupts your smoke break, remember this: if everyone does his or her job right, your smoking is a much riskier activity than window cleaning. While the survival of Alcides Moreno is a miracle, the death of Edgar Moreno is a reality that all window cleaners live with every day.

So, if you are a window cleaner, be careful out there. If you are a commercial property owner or manager, check to make sure your building is safe to work on.

Someone’s life might depend upon it.

BY MATTHEW BRODSKY

Reprinted from GO! Magazine - Inflight Magazine of Air Tran Airways, November 2007

Risk management is a hot topic with the nation’s biggest companies. Its practitioners are prime-time players on the ladder, reporting to CEOs and boards. Listen up, small businesses: You could stand to emulate the big boys and implement a risk management system of your own.

According to Rick Vassar, risk consultant and author of Hide Here Comes the Insurance Guy, a risk manager’s work permeates all levels of the organization. Put simply, risk management is knowing what obstacles could derail your business goals, and planning ways to avoid, minimize or just plain survive them. It’s as important for small companies as big ones, says Joy Gänder, owner of an eponymous consulting firm—yet small businesses often don’t give the practice the attention it deserves...

Instead, small businesses tend to relegate the task down into their organization, Gänder says. Or the very top person—the owner—gets stuck with it. The reason? They simply see risk management as insurance, a boring, confusing commodity that’s not worth the cost. “The average business owner can’t stand dealing with property/casualty insurance,” Gänder says.

Keith Pizer, co-owner of a New Jersey-based graphic design firm named 1 Trick Pony, got stuck with the job of buying insurance. He laughs about it now. “You don’t realize how many people you know in insurance until you need it,” he says.

Pizer’s broker helped him to get coverage that matches that of other companies of his size and in his industry. Gänder recommends this sort of comparison shopping for her clients.

She also can take it one step further by factoring in an owner’s risk appetite and balance sheet. If a client has good cash flow and can stomach having more on the line, Gänder might recommend raising deductibles for, say, auto coverage from $100 to $1,000. This increase means a decrease in premium.

But risk management is about more than just insurance. “Risk management is an ongoing process… and it involves a lot of common sense,” Gänder says.

Risk control is all about identifying dangers— called “exposures” in industry parlance—that can threaten business success. Th ink floods, tornadoes, fires. Think lawsuits from disgruntled clients or employees. Think employee injuries. You know your business. What can get in its way?

Figure out ways to eliminate, mitigate and/or finance these exposures. Then implement. Insurance is just one way. Risk control is another. Have a disaster preparedness plan. Review your employee handbook. Back up your servers off -site.

This all might sound complicated and costly, but it’s not. “The biggest misconception is that a risk management program is too expensive,” Vassar says.

Perry Ballard, proprietor of Ballard Safety Consulting, came to his risk-control methods, such as contract disclaimers, in part through his peers and from learning from others’ mistakes. He hasn’t had a disastrous lawsuit or other claim to date. Ballard also got advise from Vassar on how to set up his liability insurance. “You need someone to come in from the outside and look at your exposure,” Ballard says.

Of course, small companies might not be up for hiring a risk consultant. They can trust in their agents to steer them right, or tap into the wealth of risk resources on the internet, including the National Association of Insurance Commissioners, FEMA, the Insurance Information Institute and the Small Business Association.

In the end, all successful small companies get to the point where they have to do something about risk. “As they grow, most small businesses realize that they need to manage their insurance program,”

Vassar says. “Those who make that commitment continue to grow; those who don’t usually remain small or don’t survive at all.”

RISK MANAGEMENT PRACTICES TO REMEMBER

• Take it seriously. Hand the responsibility to an important go-getter. “It’s helpful to elevate risk management and give it more visibility,” consultant Joy Gänder says.

• Know your insurance policy. Compare yours with similar companies. Ensure your coverage is based on replacement costs for damaged items, not book values. Consider coverage for exposures particular to you—i.e. flood coverage near the coast or business interruption for lost income.

• Let your insurer know you. Perry Ballard, a West Virginia business owner, says he shares all his loss-control techniques with insurers. They like that.

• Claims happen, and when they do, deal with them. Consultant Rick Vassar says companies fail to report claims on time or give insurers enough information, which increases insurers’ costs—and they don’t like that.

This entry was posted on Thursday, November 1st, 2007 at 6:00 pm and is filed under Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

By Kay T. Vassar

"Mark, can you pass me the ham?" Mrs. Tippett requested at dinner.

"No." Mark replied simply, and just kept eating.

"Mark honey why won’t you pass me the ham?"

"Because it’s not nice to touch a pig unless it’s alive."

“Then just touch the plate." Mrs. Tippett said, sounding kind of annoyed.

"I don’t even want to look at it!" Apparently, Jake, Mark’s brother, had been totally tuned out of the conversation because right when Mark said that, Josh picked up a piece of ham and ate it.

"HOW DARE YOU?!" he yelled at Jake.

"What?" Jake yelled back at him.

"You know that ham is made out of pigs! And you just ate ham!"

"Yeah, so?"

"Pigs are people, too!"

Mark got up, shaking the table. "How much better would the world be, if we didn’t eat animals? Take this paper, you could benefit from reading it!" He slammed it down on the table and walked away.

Jake picked up the paper, and read the title out loud:

The theory of PETA - Eat people, not animals.

Mr. Tippett, Jake and Mark’s dad, was laughing along with Jake. Mrs. Tippett gave both of them "the look."

Mr. Tippett stopped laughing, cleared his throat, and said, " Heh-hem, well, uh, Jake Tippett, you should respect your brother’s eagerness to, uh, help the society, and to, um, make the world a better place, one pig at a time." He said that in his deepest possible voice, trying to keep himself from laughing.

In his room, Mark had put up stickers that said, "EAT PEOPLE, NOT ANIMALS" like it said on the paper. That day, PETA had come to Mark’s class, and told them that eating animals was wrong, so Mark got really into it. He was sitting in his room, writing a letter to his family saying how he was running away to join PETA, and how he was "disgusted" with the things that they ate.

He set the letter on his nightstand, and walked out the door, because he had a door in his room. He walked next door to his friend Josh’s house whose parents were a part of PETA, and he decided to stay there until his family changed their minds about what they eat.

When Mark got to the house, he knocked on the door. Melissa, Josh’s older sister, answered the door. The family was a hippie family, and they still lived in the 70’s.

"Like heeey little mannn." she said in a relaxed, laid-back voice. "Come innn, we’re like about to do some yogaaa."

Mark looked at her kind of weird and answered,"Yeah, is uh, Josh there?"

"Like one second maaan." She went behind the door, as Mark heard Josh’s parents talking.

"Meeeel, like whos at the doorrrr?" Josh’s mom said.

"It’s the little man next door like totally lookin’ for Josh." She popped out in front of the door again, and told Mark, "He’s comin’ lil’ mannn."

Then behind the door, Mark heard, "JOOOOOOSH!"

"WHAT!?"

"YOUR FRIEND’S HERE!!!!"

She popped out in front of the door again, said "Like, come on innnn."

Mark replied, "Um, like, thanks."

He took a step inside the door, and there were posters of salads and animals up on the walls. One of the posters said, "Celery is your friend" under a big piece of smiling celery.


"Hi Mark." Josh said coming down the stairs. His dad came out of the kitchen with his hair in a ponytail, and his big sunglasses on, holding his guitar.

" Liiike hey lil’ maaan! We’re just about to liiike do character charaaades. You wanna join usss?"

"Um actually I was hoping to join your PETA thing."

"Ohhhh." He walked over to Mark and patted him on the back. "Liiike yeah man. You can stay in our veg rooooom."

"What?"

Josh leaned over and whispered, "That’s the guest room." Mark nodded and told Josh’s dad "Yeah, thanks Mr. Trustier."

"Duuude, I thought I like told you to call me Bright Moon."

Back at the Tippett’s house, Mrs. Tippett walked into Marks room. "Hey, Mark what was that at dinner- What’s this?"

She found the letter. "TOM! TOM!” She called down to Mr. Tippett. "Come here! Mark’s gone! All he left was this note!"

Mr. Tippett came up behind her and asked her, "Really?"

Here’s what the letter said:

Deer Dear Famly,

I am disgustd with yur your eeting habits, and desided too go and join the pida peeple. i mite com back if yu find me but you nevr wil find me.

Mark Tippett

Jake came around the corner to see his mother crying. "What’s wrong with mom?"

Mr. Tippett turned around and answered, "Mark ran away."

"Again?"

"Yep."

Mrs. Tippett turned around and said, "Jacob! How c-c-can you say that when my baby’s missing!?"

"Um, yeah, and I, uh, I’m, uh, bye!" He ran away before he could get in any more trouble with his parents.

Back at Josh’s house, Mark was trying to fit it with the family’s "rituals." They were naming the vegetables in their salads, and Mark was trying to figure out what to name his broccoli.

"Liiiike how’s ‘Carl’ for my lettuce lil’ maaan?", Melissa asked Mark.

"Uh, well it’s cool."

"Ok. Let’s eat!" Josh said.

At dinner, the Trustiers were sharing their "names." Melissa’s was Cloud Shine, Josh’s was Plate Warmer, and Mrs. Trustier’s was Flower Poker.

"And your name isss Raymond." Melissa told Mark.

"Raymond?"

"Do you liiike have a problemmm with that name?"

"No." Mark said nervously, then looked down and kept eating his pet salad.
Mark had started thinking, "These people are kind of weird..." They all heard a knock on the door, and Melissa got up to answer it. The person at the door kept knocking and knocking.

Suddenly, they heard barking, and Mark leaned over and asked Josh, "What’s that barking; it sounds like a Chihuahua!"

"Oh, that’s our pet cauliflower. She gets worked up when someone knocks on the door."

"Um, ok."

"Heeeey, Raymond, your parents are here."

"THANK GOODNESS! MOMMY! DADDY!" he yelled as he ran down the hall, grabbing his stuff and hugging his parents.

"Mark, we missed you soooo much!", said his mom.

Jake chimed in, "He was only gone for an hour and a half! I sleep over at my friend’s house for whole weekends at a time, and when I get home, all I get is a ‘Hey Josh, go clean your room!’"

"Liiike bye, Raymond." the Trustiers all shouted as Mark walked out the door, but when he took a step out of the door, he felt a bite on his ankle, and when he looked down, there was a cauliflower sitting there, panting.

"AAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAAA!!!" he screamed, and ran away.

"Duuuude, I guess like some people don’t like, like animals." Melissa said, as she picked up the cauliflower and walked inside.

When they got home, Mark ran upstairs and into his room, followed by his dad.

"So, uh, Mark."

"Yeah dad?"

"Um, what made you want to join PETA in the first place? And do you still want to join? Because if you do, we're behind you all the way."

"Thanks, dad, but I am REALLY over my PETA stage. I mean after meeting the Trustiers, I don't think anyone will want to."

His dad laughed with Mark and asked him, "Sooo, do you want to go have a cheeseburger?"

"Well....."

"Mark, buddy, come on, we're supposed to eat animals! Why do you think God made so many? So they can eat us? Yeah, I don't think so!"

Mark laughed, and replied, "Ok, you may have a point there."

Reprinted with Permission from The John Liner Review Winter 2007

Commentary

Insurance professionals learn about risk management — but not, apparently, about what a risk manager actually does. The need for education goes both ways.

A Risk Manager in an Insurance World: Odd Man Out

Rick Vassar

It’s always the same old story.

I go to a party, family gathering, church — it really doesn’t mat-ter. Eventually, someone will ask me what I do for a living. I tell them I’m a risk manager, and it’s always the same follow-up: “What does a risk manager do?”

There was a time when I would spin into the old Risk Management 101 song and dance, filling their heads with probability versus possibility, losses contingent upon this and that, subrogation stuff, until their eyes glazed over and they stumbled away dazed and confused, avoiding me like a plague, not only that evening, but forever.
Now, I give them the short answer: “I purchase insurance for my company.”

“Oh, so you’re like a broker.”

“No, a broker sells insurance; I buy insurance.” I remember using this explanation on a brother-in-law about 20 years ago. Whenever I’m with him and I meet someone new, he introduces me as “This is Rick; he sells insurance.” So much for communicating what a risk manager does in a social setting.

Stranger in a Strange Land
In an insurance setting, I would expect a better understanding of what I do. So imagine my surprise when I attended the Chartered Prop-erty Casualty Underwriter (CPCU) Society national meeting a few months ago. Here I was, amongst the greatest minds in the insurance industry, celebrating the fact that I had achieved the most presti-gious insurance designation in the property-casualty side of the business.
Then it happened, early and often — “So, what do you do?”

Actually, the first question was always, “Who do you work for?” since it was assumed that you work in the insurance industry. It didn’t matter what you do — the question was, “Who do you work for?” I heard responses such as “North American Life,” “Aon,” “Marsh Mac,” “AIG,” and “Zurich.”

“So, Rick, who do you work for?”

“I work for Valcourt Building Services.”
“What is Valcourt Building Services?”

“Why, it’s the premier building services company in the United States.”
“Seriously, who are you with?”

“That’s who I work for. I am a risk manager.”

“Really? What’s a risk manager?”

“I’m your customer!”

Slight pause.

“Of course you are.”

Pulling Back the Curtain
As implausible as this may sound, this is exactly how it seemed conversations went at this convention. It was like I was invited into this club, and the members were looking around to figure out who in-vited HIM. It wasn’t lack of courtesy; these folks couldn’t have been any nicer. I just got the feeling that they really didn’t know what to think of me, and they certainly didn’t know what to do with me.

I showed up at a meeting of a national committee that I had some interest in joining. Everyone was very warm and receptive until the meeting started, when one of the first questions asked of me was how I ended up on this committee. (How did HE end up here?)

It was pointed out to me time and time again that the president of the CPCU Society was a risk manager. I didn’t have the heart or the energy to tell them that she was a risk management consultant, not a risk manager, because they just wouldn’t understand the difference.

A Side Trip to Oz
Maybe it was because the lack of understanding of the risk manag-er’s function was so unexpected or maybe it was because it wasn’t so unexpected, but for the first time in my life, I truly felt as Doro-thy must have felt when she landed in Oz.

The Risk Manager as Dorothy
You see, I never started out to be a risk manager. Twenty years ago, no one knew what a risk manager was. I was a regional operations manager who kept asking for more to do, until one day they put me in charge of claims. I stayed with that organization for 15 years, be-coming a director of risk management and learning as I went along. And, “in the land of the blind, the one-eyed man is king.” I knew just a little bit more than anyone else in the organization about risk management, so I looked like a genius.

I supplemented my experience with education, receiving the Associate in Risk Management (ARM) in 1996 and the aforementioned CPCU in 2005. I also received the Associate in Insurance Services (AIS) and Associate in Risk Management for Public Entities (ARM-P) in 2005 as well.

What I didn’t know until I passed all these courses is that, of the 27,000 CPCUs in the world, less than 2 percent are risk managers and less than 1 percent work outside the insurance industry. The fact that I have never worked in the insurance industry makes me even more of an anomaly — an insurance customer who has always been a customer!

So, just like Dorothy, I was thrust into a world that I did not un-derstand, and it was fraught with danger. I charted a path, arming myself with allies who were often as clueless as I, and we set out to find the wizard, which in this case was the insurance industry, and the explanation of how it all worked.

Dorothy’s Adventures in Oz
When I received my CPCU designation, it was as if I had made it to the great hall of the wizard, and I was allowed to take a peek behind the curtain, where I was shown how it all works. I was invited to stay, but I decided to return to Kansas and report on what I had seen. The book I wrote as a result of my foray into the Oz of insur-ance chronicles my experiences in an effort to make the road easier for other risk managers who choose to make the journey and for those organizations that want to know more about what the journey entails.

Meanwhile, Back at the CPCU Meeting …
The one part of the meeting that made me most uneasy was when this committee started to try to figure out how to increase membership, not only for this section, but also for the CPCU Society as a whole. The committee decided to look into how RIMS (Risk and Insurance Man-agement Society) has steadily increased its membership and assigned people to look into RIMS’ marketing techniques. Since I wasn’t sup-posed to be there, I didn’t tell them what I thought was obvious:

“Stop Treating Your Customers Like They Are Outsiders!”

The Educated Insurance Customer
Clearly, there is a need for the insurance industry to understand the role of the risk manager in the insurance process. Then, risk managers won’t feel like outsiders at professional insurance gather-ings. But education goes both ways — the risk manager needs to know the intricacies of the insurance industry, too.

Risk Managers Are Essential to the Insurance Process
The easiest way to get involvement from the risk management commu-nity is to recognize risk managers for what they are: an essential component of the insurance process. Far be it for me to point this out, but without an insured, there is no insurance process. There is no need for a provider if there is no customer.

But the antiquated thinking prevalent in the insurance industry seems to indicate that the less the insured knows, the more insurers can sell. The more insureds buy, the more money the industry makes. This makes absolutely no sense. The insurance industry needs to real-ize that an informed consumer makes the best customer.

If a representative of an insured (the risk manager) is given an education on risk financing, risk control, and managing his or her organization’s insurance program, the insured will see the need for insurance because the risk manager understands the process. Educating the consumer doesn’t mean lower commissions because of lower pre-miums; it means being able to insure better risks, which will allow the insurer to go out and secure more good risks, strengthening and expanding its overall book of business.

Risk Managers Are Professionals
The reason more risk managers don’t pursue the CPCU designation is because they are often not considered to be insurance professionals by the insurance industry, especially if they do not have insurance industry experience. Yet, most risk managers come from the purchasing side of the insurance equation and are usually appointed from within an emerging organization to fill a need. The more professionalism they can bring to the job, the better. Doing their job almost always involves purchasing insurance, and education aimed at insurance pro-fessionals is vital to performing their job effectively.

I was in operations and had risk management thrust upon me, and, over time, it became a career. I truly believe that those of us who have an understanding of business first and then learn the insurance side are just as effective, if not more effective, as those who come out of the insurance industry and become risk managers, because we understand that in the minds of owners, executives, and operators, production is king, and the trick is to fulfill the objectives of a good risk management program within the constraints of the production mentality. The insurance industry can benefit from our expertise.

Risk Managers Understand Risk
By its very definition, business is a risk-taking enterprise. The key for the risk manager is to determine the tolerance for risk with-in the organization and work within that established box while striv-ing to improve upon the existing controls by proving that they are working. This allows for improvement and insures against a regression that could dissolve into intolerable uncertainty.

An owner asked me once why I thought his company was losing money. Without hesitation, I told him that I thought it was the company’s “production at all cost” mentality. Of course, he told me that with-out production, there would be no company. I agreed, but pointed out that I was not worried about the production. It was “at all cost” that concerned me. If your organization’s solution to problems is just to throw money at them in order to make more money, that atti-tude will catch up with you, probably sooner than later.

A Win/Win/Win Situation …
So, why is it a win for the insurance industry to have an educated insured?
… for the Insurer …An insured that knows how the insurance process works will see the value of lowering the frequency and severity of losses and will take active steps to lower its losses and reduce its premiums. While pre-miums become lower, so do combined ratios, which will increase profits. The customer will become more loyal both to the broker and to the insurer when the insured sees that its association with both has consistently lowered its costs and increased its profits. From a transactional standpoint, the need to move the insured’s program will become a nonissue if the insured knows it is getting a good deal.

… and for the Insured …The Associate in Risk Management (ARM) designation gives the desig-nee the understanding he or she needs to be an educated insurance consumer. I would advocate that all risk managers pursue the ARM de-signation. An educated consumer makes the most efficient choices when dealing with insurers and brokers.

… and for the Risk Manager Who Has Earned the CPCU Designation
I would strongly advise all risk managers to pursue the CPCU desig-nation, and I would also encourage their companies to advocate this training for their risk managers. The reason I never pursued the de-signation earlier in my career was twofold.

1. I thought it was too hard.
2. I didn’t see the value to my position as a risk manager.

I passed all the courses in 176 days — not bad for a risk manager. I am asked time and again how I was able to do this so quickly, and the only honest reply I can give is this: “It’s what I do.”

The value of the CPCU designation is this: instant credibility in my dealings with the insurance industry. When I send an e-mail or correspondence, I am afforded the respect that comes with attaining this level of excellence. It is assumed that I am an insider, and my job is made much easier with the CPCU next to my name. Insurance in-dustry people just assume I know what I’m talking about.

So, you have instant credibility for the risk manager, lower premium for the insured, and increased profits for the insurer, just by letting the insured take a peek behind the curtain. Sounds like a win/win/win situation to me.

Conclusion
In business, insurance has always been the 800-pound gorilla in the room. It’s always there, and it’s not going anywhere. Hardly anyone in business really understands it, and most don’t want to commit the time to learn. The only way to maximize your organization’s potential is to manage your risk and your insurance, and you can do this effec-tively only by learning the product and services and how to effec-tively manage them.

In this day and age of information technology as well as increased competition, it is imperative that insurance costs are managed. If you are informed, you may no longer have to accept the “hard market” as the only excuse for increased premium, and you will certainly be able to easily tap into the market, should you be given that excuse by your insurer.

There is a bit of mistrust between the insured and insurer, and the only real way to bridge this gap of trust is for each side to have a better understanding of the process and its role in the process. Sav-ings will go up and so will profit, and that’s all we are really looking for.

Bring the risk managers in.

We’re not in Kansas anymore.

Rick Vassar, CPCU, ARM, AIS, ARM-P, is the principal in The Vassar Group, LLC Risk Management Consultants as well as Vice President of Risk Management for Valcourt Building Services, LLC, both located in Virginia. Vassar has over 20 years experience in risk management and has written on various risk management topics. Vassar could never find a primer on business insurance for the business person, so he wrote it. Hide! Here Comes the Insurance Guy — A Practical Guide to Understanding Business Insurance and Risk Management (iUniverse Press 2006) was published in June 2006.


Reprinted with Permission - The John Liner Review Winter 2007 Standard Publishing

I had the opportunity to reflect on some of the experiences I have had in my life, as well as some of the situations in which I've realized that some people are just plain stupid. To me, it seems as if there has been a progression over the years:

1955- Diner: “Waiter, there’s a fly in my soup.”
Waiter: “Don’t worry, flies don’t drink much.”

2005- Diner: “Hey, there’s a finger in my chili.”
CSR: “Cool! Hey, anybody missing a finger back there!? I’m sorry, ma’am but we charge 99 cents extra for human fingers, but don’t they taste just like chicken?”

So now this lady's in jail. I hope they investigated Uncle Louie, who was once arrested for petty theft, or as the police report called it, a “four finger discount”. Or was it Grandma Edna, who accidentally chopped her finger off cutting up a ham, prompting her daughter to say, in a most sympathetic of ways: “Get Grandma a band-aid. Anybody want to go to Wendy’s?”

As a career risk manager, I take these things with a grain of salt—naw, I’ll leave that one alone. Maybe she found it on the street. Maybe she found it on e-bay, and successfully bid $89.95 for it, and needed to make her investment work for her. It gives me pause, though, to reflect back on my life, and the wonderful ruses all perpetrated in the name of cash.

First, a little risk management 101. When someone tells you it’s not the money, and it’s the principal of the thing, don’t let them fool you—it’s about the money; it’s all about the money, and it’s always about the money.

My favorite story involves a guy who thought he was smart but was actually very stupid. He worked with my wife, and in 1987, he got married, and his wife got pregnant. The baby was born in February, 1988. This guy claimed the baby on his 1987 taxes. When the IRS came a-knockin’ on his door, he told them that the U.S. Supreme Court declared that life begins at 24 weeks after conception, and since his kid legally “came alive” in 1987, he was entitled to the tax deduction. He is still to this day paying off the interest and penalties on that stroke of genius.

Then there was the guy who was a car wash supervisor for a rental car company I worked for. He went to the doctor and was diagnosed with tennis elbow. He promptly came into the branch office and made a workers comp claim. When I took the report over the phone, I deviated from the script a wee bit. I asked name, address, date of birth, and in the middle of this line of questioning, I asked him if he considered himself an active person. Yes, he did. Do you play any sports? Yes, I played softball, basketball, tennis and soccer.

I’m sorry, did you say basketball? Okay, good, got it. Social? Okay. Safety equipment provided? Okay. Now let me go back and make sure I got these activities right. You said you like tennis? Yes, I love tennis. Okay, great. One more question: Do you think that maybe your tennis elbow could have come from… playing TENNIS!?

I loved the people who would rent a car, smack it up, and then drop it off at a suburban branch after the office had closed. When the vehicle was found the next day, the manager would call the customer to find out what happened:

Customer: I don’t know. It was fine when I dropped it off.

The customer would then call my office after they received a bill for $8,000, and say they didn’t do it. Yea, 40 cars parked all neatly parked on the lot, and the only one that ever seems to come up totaled is the one that was dropped overnight. What are the chances? And every person who tries this believes they had thought of it first.

You know those highway signs that have a blinking area to direct you either left or right. There is also a middle switch (or so I assume) so the sign blinks a straight line. I had a customer tell me that they came to the fork in the road, and there was a blinking straight line, so they went straight—into the sign. I believe alcohol was involved in that one.

I’ve had employees call for an ambulance, and call an attorney on the way to the hospital. I had an employee who took a car home and totaled it on the way. He called it in, and was absolutely flabbergasted when he clocked in the next day and was promptly arrested. I had a customer tap another vehicle while parallel parking in Washington, DC. The two occupants got out of the car, saw it was a rental, and called for an ambulance. I didn’t think this was too unusual, until the customer told me the two occupants were uniformed police officers and the vehicle he tapped was a police cruiser.

Am I jaded? You bet I am. The sad aspect of all this is that there are individuals out there for which the tort system is necessary to compensate for the negligence of others. Unfortunately, the system is mired in cases in which folks just want to make a buck. As risk managers, we lose faith as well as focus, and it becomes a war zone. And the path is paved with recidivism. Once someone so inclined finds out he or she can sit at home and collect almost the same amount in pay from work comp (I like to call it the “Watching the Beav”), they are inclined to do it again. And who can blame them. It beats working.

And don’t get me started on class action lawsuits. I tried one of those once. It was against my power company. I signed up and sent it back. A year later, I received a notice saying that the suit was settled, and my bill would be surcharged $20 a month for five months as an offset. I figured we lost. To my surprise, I found out we had actually won, and the power company was going to issue an apology. The settlement, though, didn’t quite cover the attorney fees, which was the reason for the surcharge.

Oh, well, it was the principal of the thing anyway. Although… if I had that cash now, I could have gone on e-bay…

Anybody want to go to Wendy’s?

Hide! Here Comes the Insurance Guy
Expert offers up eleven crucial questions to help people determine their risk management needs

(Arlington, VA) Rick Vassar is not your ordinary run-of-the-mill insurance person. Rick Vassar does not sell insurance. He buys insurance. He is a risk manager. He’s refreshing and totally committed to making people trust him in spite of his chosen profession!

His new book, Hide! Here Comes the Insurance Guy, educates and entertains with energy and enthusiasm, and it’s a must-read for anyone who owns or operates a business.

This is a truly unique concept – an authoritative explanation of business insurance and practical cost-saving risk management strategies from the business perspective.

With a no holds barred and no prisoners taken approach, he takes the mystery out of the most mind-numbing insurance questions that plague everyone who’s ever sat down with an insurance policy and tried to make sense out of the minefield of questions that have to be answered.

“We all need insurance,” he says “but let’s face it – most of us can’t understand a single word insurance people are saying.”

With humor and a bit of spunk, you can go to Vassar for the answers!

In any organization, not managing your insurance program can cost a company thousands, if not millions, of dollars.

Hide! Here Comes the Insurance Guy is a guide to business insurance written by a businessman.

For example, here is a sampling of some of this truly sane advice about how you can attack the subject and divide up the risk management process into four distinct steps to control & improve your insurance costs:

1. Understand the language

Like any other specialization, insurance has a language and cadence all its own. You must learn the language to understand the process.

2. Know the players

Once you understand how all the pieces fit together, you will better understand the process. Better understanding leads to better management, which leads to savings.

3. Develop a strategy

Just as your business has a game plan (for example: goals, vision, mission, five-year plan), there are subtle yet distinct ways to work your insurance program to maximize your coverage for minimal cost.

4. Invest the time

You spend years and years going to school so you can get a good job or start your own business. You go to conferences and seminars to aid in your development as your career progresses. If you take the time initially to learn about insurance, how it works, and how you can make it work for you, it will help you reap real financial benefits while providing the maximum coverage for your company.

One of the biggest questions that business owners face is whether they are properly insured. Vassar provides a really helpful set of questions to help business people answer that question. In a section called the ABC’s of Risk Management, he offers up eleven crucial questions to help people determine their risk management needs.

Some of these questions are:

1. Do you own the facility? If yes, is the replacement amount on the policy sufficient to cover a total loss to that facility? If no, do you have the proper coverage as required by the lease?

2. Are customers regularly on the premises? If yes, does your present coverage adequately protect you from them?

3. Are there employees on the premises? How many? Who does what?

4. Is there inventory on premises? Is it properly valued to cover a loss?
5. Is there equipment on-site, which is leased and, if owned, properly valued?

6. Would the loss of a piece of equipment interrupt the entire process? If the
answer is yes, would this disruption cause a significant loss to the organization? Is the company covered under any of the present coverage?

7. Do you depend on suppliers for key aspects of this process, and if so, would the loss of this supplier interrupt the process in any way?

And more.

Rick says he designed this analysis for super simplicity, which will allow you to define your risks and determine what you will need to protect yourself in the event of a accident or disaster.

Hide! Here Comes the Insurance Guy also provides valuable strategies for interacting with the insurance industry from an insurance professional who has operated on the business-buyer end of the process. Here are some of the most effective tactics you’ll ever find in the areas of business insurance and risk management demystified by a businessman who has actually achieved real cost savings for himself and his clients.

Hide! Here Comes the Insurance Guy provides insight into an aspect of business life that few people readily understand. This wonderful little book can show you how to protect your company from losses and save lots of money in the process.



Hide! Here Come the Insurance Guy – A Practical Guide to Understanding Business Insurance and Risk Management

The hard market is the stuff of legend as far as I’m concerned. To me, it appears to be a cyclical and arbitrary theory promulgated by the insurance company to justify the need for increased premiums to fuel shortfalls caused by free market conditions and certain disasters that adversely affect the insurance industry.

But that’s just me.


First, let me say that there may have been a time that the theory of a hard or soft market may have been justified. I’ve only been in the business since 1986, but the research on the issue is a little sketchy.

From what I have gathered, soft markets, in which insurance premiums drop and the market is more advantageous to the buyer, generally lasted two to five years and would follow the cyclical trends of the economy.

By 2001, we were almost nine years into a soft market, and there were no real signs that it was going to turn anytime soon. By the insurance industry’s estimation, we were at least four years overdue for the market to harden, which would have led to significant and, in my opinion, arbitrary price increases, and all I heard from the industry professionals was this:

“Be prepared. The market is starting to harden. These low rates can’t last for long.”

And so it went.

Then there were the bombings of the World Trade Center and the Pentagon on September 11, 2001. Now, there is no doubt that this was a catastrophic event, the likes of which have never been seen on American soil. But from an insurance standpoint, and particularly from a property casualty standpoint, this was not a catastrophe that should have ushered in the hard market in the insurance industry that came about immediately after these events—especially in the property casualty market.

Much of the loss of life was covered through life insurance. As of this writing, the property claim at the World Trade Center has yet to be resolved, although a federal jury has categorized the event as two occurrences, meaning that the ownership group could collect the limits twice because the policy was written on an occurrence basis.
The losses that ensued from business interruption and loss of revenue coverage were well funded prior to this loss, and therefore should have been a non-factor. I firmly believe that the insurance industry took this event and used it as an excuse to arbitrarily “harden” the market. The losses were well funded, and although the fallout from 9/11 did result in the bankruptcy of some insurance carriers, these companies can find no fault beyond their own parking lots because of their internal reserve and surplus policies before the event.

Now that the industry has had the opportunity to review the economic fallout from these attacks, these appear to be a consensus of understanding:

 Total economic loss due to the attacks was around $38 billion.
 Insurance losses amounted to roughly 50 percent of that total ($19.1 billion).
 The property damage to the World Trade Center alone was approximately $7 billion of the total
 Much of the losses were covered by life insurance, which would not significantly affect the property casualty side of insurance.

Thus, you are looking at property casualty losses, independent of the WTC loss, which was absorbed by one group of insurers and reinsurers, of less less than $10 billion. In contrast to this, the economic effects of Hurricane Katrina are estimated to be in excess of $50 billion. Hurricanes Ivan and Charley in the summer of 2004 have estimated losses of $19 billion. Yet, neither of these events seem to have had the impact on the insurance markets that the 9/11 attacks did.

I believe there was a watershed decision made in 1999 that should have put the debate of the hard market to rest. In that year, Congress passed the Financial Services Modernization (Gramm-Leach-Bliley) Act. This act allowed, for the first time, banks to offer insurance products and for insurers to offer banking services through holding companies. This created a synergy between the two industries which allowed both to tap into their customer bases and mine business from the other industry. Banks and insurance companies could offer their clients a one-stop alternative for both insurance and banking.

The result was an increase in competition in the marketplace, which led to consolidation of companies that were too weak to compete in the more dynamic market. The increased competition increased supply for a fairly stable demand, reducing the prices in the marketplace. The increased competition also caused some weaker insurers to lower their qualifications for coverage, which weakened their overall book of business and made them susceptible to the vagaries of the free market. At the same time, it provided a need for coverage in the secondary market that was not being fulfilled at a reasonable price.

These market conditions were becoming evident prior to 2001 and fell back into line fairly quickly after 2001. From an indemnity standpoint, the 9/11 attacks should have been a nonevent but for the insurance industry’s need to have an excuse to raise premiums and rid themselves of some bad risks they were forced to take due to the increased competition from FSMA.

Now be forewarned. I'm told the market is going to start to harden later this year.

These days, it seems all we hear about in the risk management arena is the advent of enterprise risk management. Now, I am sure that the qualification of risk management on all levels of an organization has great merit, and that the quantification at each level is very important.

The issue I have is the same issue that any good risk manager has with this premise: Risk management, to be effective, must be identified at all levels of the organization, or it won't work. It has always been like this, way before we started calling it "enterprise risk management." If your company does not have an awareness of the need for risk control in the backroom as well as the boardroom, then production needs will outweigh all concerns, and preventable losses will occur.

An owner and chief executive ask me why I thought the company wasn't making any money. I replied that the organization was motivated by production at all costs. "Well," came the reply, "if we don't have production, we have no company." I replied that it was not the production side of the equation that concerned me, it was the "at all costs" part that was troublesome.

Only with a top-down commitment can a risk management program succeed at all levels of the organization. The risk manager who has that commitment in words and deeds will be able to elicit systematic changes in the production chain, leading to a healthier workforce and reduced costs. If not, then let's face facts—at that point, all you're really doing is insurance.

You know what I'm talking about-- dealing with a car accident, your neighbor's tree falls on your house or perhaps you added a teenager to your auto policy.

Tell me your insurance nightmare story. And, as impossible as it may sound, please edit out the profanity. I get it...

In the comments below, tell me your insurance or claims horror story...

The top two stories win a signed copy of Hide! Here Comes the Insurance Guy, the powerful new book that has taken the business and insurance industries by storm


Yes, It's True - I Am An Insurance Guy on Purpose

Why I Wrote a Humorous Book On Insurance


When you mention the term "insurance guy" or "insurance gal", many different images come to mind.

You may think of these well tailored, professional types who stroll through those beautiful downtown insurance company offices, off to wherever those people go to do whatever it is they do.

Or perhaps you envision the slightly harried insurance adjuster or appraiser who comes out to look at your car when it gets smashed up.

You know the one I’m talking about-he comes out with a camera around his neck, a clipboard in his hand and at least one pen in his shirt pocket.

It doesn’t matter how much damage is on the vehicle; he always looks at you and says "Where was it hit?" He feels around, takes a couple of pictures. For some reason, he always rubs a mark of the roof with his thumb.

He then gives you an estimate, and disappears, calling out "any questions, call your adjuster". As you leave, you hear faintly in the background: "Where was it hit?"

Maybe you think of your insurance agent, whom you call when you add another car to your auto policy, and she says she needs the check today, so if you could meet her at her son’s cello recital at the elementary school at 3:15.
You pull up next to her Escalade and hand her the check. You decline an invitation to see the show, resisting the urge to tell her you have other things to do, like making a living.

If you work in the insurance industry, it doesn’t matter what you tell folks. All of them think one thing-he works in insurance; he does insurance; he must SELL insurance.

I am a member of a lesser known community of professionals that choose to interact with the insurance community on a full time basis. I’m that guy in your organization who always seems a little disheveled, slightly distracted and just a tad odd.

I am a risk manager.

"Hey," you might ask "What does that guy do?"
"He’s the risk manager," is the reply. "He does the insurance. Whatever you do, don’t talk to him. Nobody ever talks to him. If you do, he’s going to bore you with all that insurance nonsense, and since people rarely ever talk to him, he won’t let you get away. Some folks say he’s brilliant, but I’m not really sure. No one really knows what he’s talking about, so they leave him alone. Actually, in a big company like this, that alone makes him a genius. He hangs out with the IT guy. Go figure."

I am a risk manager. I work for a company, trying to make sure that all the risks and loss exposures a company has can be afforded, and for those exposures that cannot be afforded without a negative financial impact on the organization, I purchase insurance.

I lead a kind of lonely professional life. When I walk the halls, people know that if they talk to me, I may try to work insurance into the conversation. So they duck around a corner or dive under a desk. Some will even get on the phone to other departments:

"Joe? Hi. Hide! Here comes the insurance guy!"

Thus, Hide! Here Comes the Insurance Guy was conceived. In 1986, I was in an operations position at a regional car rental company. My boss got mad at me and decided to punish me by putting me in charge of claims.
As time went on, I became the full time risk manager. I remember when I fell into the risk-management role at the company I was working for at the time.
I almost had a nervous breakdown. Was it because of the pressure of handling insurance for the entire organization? Or was it because that same year, the company had decided to self-insure its entire fleet of 5,000 vehicles?

Nope. It was because I couldn't understand a single word they were saying!!

For every insurance professional who takes a position as a risk manager, there are nine or ten of us who fall into the job because a need develops as the organizations grow. That need may be filled by someone who has interacted with insurance companies, or like me, due to a short term anger episode.
Regardless, I only wished I could have found a book that explains how business insurance works and what a risk manager does.

All of the information on business insurance comes from the insurance industry. In fact, most companies rely on their insurance broker for insurance expertise.

But wait, aren’t they the ones who are selling you the insurance?

I am an anomaly in the insurance industry. I currently hold four insurance designations, including the Chartered Property Casualty Underwriting (CPCU) designation, which is considered the highest and most prestigious designation conveyed in the property/casualty insurance industry. Yet, less than 2% of CPCUs are risk managers and less than 1% work outside the insurance industry.

I am a risk manager, and although I am considered an insurance professional by the insurance industry, I have never worked in the insurance industry.

Hide! Here Comes the Insurance Guy is an approachable text on how to manage your insurance program to protect the assets of your company in a cost-effective manner. The book de-mystifies the process, and educates as well as entertains.
When was the last time you could say that about an insurance book?

If you are a risk manager, you will identify. If you are an executive, a business owner or just someone totally baffled by insurance (and you're not alone), it’s a must read.

Rick Vassar CPCU, ARM, AIS, ARM-P is the principal in The Vassar Group, LLC, in Sterling, VA, specializing in risk management and insurance consulting.
Copyright 2006 by The Vassar Group, LLC. All rights reserved. Reproduction in whole or in part without permission is prohibited.
Hide Here Comes the Insurance Guy – A Practical Guide to Understanding Business Insurance and Risk Management, 2006 iUniverse, Inc. ISBN 0-595-38608-6 (pbk) ISBN 0-595-83388-7 (cloth).

Invariably as a risk manager, I am asked the question I would anticipate with fear and trembling:

“So, what exactly does a risk manager do?”

In earlier times, I would begin to explain risk control, identifying losses, insurance, risk retention, blah, blah, blah. After about 30 seconds, the puzzled look is replaced with the rather uncomfortable “eyes glazed over”, and I imagine that I begin to sound much like the parents in the Charlie Brown cartoons. Even my beautiful wife of over 16 years tells people that it has something to do with insurance… or something. She does show a remarkable interest in captives, and not due to their cash flow or tax implications. She just wants to go to Bermuda.

As a risk control specialist, I knew that there had to be a way to explain my chosen vocation without causing folks to run the other way the next time they see me. A loss exposure which affects everyone, male and female, with no accurate forecast of when and where it might occur, and the consequences of improper preparation coupled with an inadequate response could lead to catastrophic results.

Then it dawned on me. Smacked me right in the face, it did. A circumstance and situation every man has experienced or will experience in his lifetime:

“Honey, does this outfit make me look fat?”

You’re smiling, aren’t you? Admit it. You have either asked it, or had it asked of you. It is a question so fraught with peril and danger that it could lead to losses for years to come.

For me it came around the second year of my marriage to my aforementioned beautiful wife. I will forego the details of the actual encounter, and blame it on long term memory loss. I had been a risk manager for a little over a year, but it didn’t matter. I was in the middle of a disaster, I had not done any pre-event planning, and I really had not entertained the possibility of this loss exposure. I was in big trouble.

You see, ladies, there is no good answer to this question. If I answer yes, it begins a dialogue on weight, body image (“So, you think I’m fat?”) etc. If I say no, I risk being untruthful to my sweetie. She also goes out looking like the Michelin man in an outfit at least two sizes too small, which she will eventually rationalize, and then I’m really cooked.

So what do I do? I have to say that I was very proud of my response, which did not prevent a loss from occurring, but did help to reduce the loss significantly and prevent future losses of mammoth proportions. I looked her straight in the eye, pointed a finger at my midsection, and said:

“Does this shirt make me look stupid?”

Now don’t get me wrong. I was still in big trouble, but I was able to minimize my losses, as well as set the groundwork for future loss exposures. I explained that no, I didn’t think she was fat, and that even Olive Oyl would look fat in a too small outfit. I also explained that I love her too much to lie to her, and that she needed to know that she could trust me to tell her the truth. Then I gave her the one truth that is universal in this situation—

If you feel the need to ask this question… it does!! So don’t ask—CHANGE!!

So that is how I explain what I do. Identifying, controlling, reducing, preventing, and now contingencies based on loss history. This makes me sound much more exciting than I am, living a life in the reckless and carefree world of risk management. And wouldn’t you know, I had some guy ask me about loss control and the cost of risk in a social situation.

I told him about Bermuda.

I really don’t like dealing with my HMO. If I asked for a show of hands for all those who find interfacing with their health insurance company a pleasant experience, you would probably get the same response if you asked the same group if they enjoy sticking a needle in their left eye.

When my family must interact with our HMO/PPO, this task falls to me, since I have a little more patience, being “in the business.” My wife did try to call one time. I begged her not to, but she insisted, saying we should share this burden. I reluctantly agreed, gave her the number, and walked upstairs to change. I came back down 10 minutes later, and she was sobbing into the phone, yelling “I don’t want to speak to a supervisor, I just want an answer to my question!” Last time she volunteered for that duty.

I really don’t have much trouble with customer service at our PPO. When I was in college, I sold books over the telephone. You know, the kind that once they start, they never stop coming? We had little flip charts: If they say no, go to chart 2, if they say no again, go to paragraph four on chart 3. If they say yes, get their info, etc. I lasted one half of one shift, and never went back, but it gave me enough experience to imagine how my PPO probably works.

I call the toll-free number, and keep hitting zeros until I am queued up. I listen to the Muzak version of Christopher Cross’ “Sailing,” and I am connected to my rep, Ted. This is one of the largest health organization’s in the country, and I get...Ted.

I always get Ted.

CSR: Thanks for calling. How can I help you?

Me: This is Rick Vassar, My member number is—

CSR: Dude, it’s me, Ted. What’s happening?

I began to think that Ted was the only one who works there, and my suspicions were validated the day I unknowingly and accidentally hit the prompt to speak to someone in Spanish. I was put on hold, listened to some song by Carlos Santana, and just before the guitar solo, I hear:

CSR: Hola, como le puedo ayudar?

Me: Uh, this is Rick Vassar, my member number—

CSR: Vato, soy Ted.

Me: Ted, I don’t speak Spanish, can you help me?

CSR: Lo siento ese, vato. Tienes que llamar otra vez y que te pasen con los que hablan Ingles loco.

I hang up and call right back, hit zeros, and get the “Sailing” hook again.

CSR: Thanks for calling. How can I help you?

Me: Yes, this is Rick Vassar, my—

CSR: Dude, it’s me, Ted.

Me: Hi, Ted. Listen, I have this claim—

CSR: Sorry, dude. Not covered.

Me: Why is that?

CSR: Uh, no referral—

Me: Well, if you look at the evidence of insurance, on page seven, paragraph four, it states that coverage should be afforded without a referral.

Silence.

Me: Ted, what’s the problem?

CSR: I told them this was going to happen.

Me: What’s that?

CSR: They told me nobody ever reads the contract...

In the past few years, class actions have been filed against carriers alleging unequal and improper claims handling, offering incentives to doctors not to make referrals, direction of care being dictated by managed care professionals and skyrocketing premiums. In 2003, some of these insurers settled their cases with doctors, agreeing to allow doctors to be doctors, increasing sensitivity to the patients’ needs and speeding up claims payments. Meanwhile, each doctor received enough cash after attorney’s fees to buy a venti latte at Starbucks. Many of these insurers have used this settlement as a marketing tool, reaping free good press well in excess of the amount settled in this “landmark” case. In fact, one of these companies’ stock price has increased over 250% since the announcement of this settlement.

But nothing has really changed. HMOs are still denying claims on a less than equitable basis, and they are denying portions of claims that are not usual and customary (to that particular company), and the patient is the one left holding the financial bag.

As a risk manager, I have a little better handle on what a company can and cannot do, so I can show them how they steered off the path. But millions of people do not know what their rights are, pay what they are told to pay and make healthcare decisions based on economics.

I have been very fortunate to get most of my claims paid, and I would have to hope that things are getting better. In the meantime, I have one assurance that I can guarantee with the utmost certainty.

I have Ted.


Reprinted from Risk Management Magazine.
Copyright Risk and Insurance Management Society, Inc. All rights reserved.

In 1973, the Supreme Court, in Roe v. Wade, ruled invalid any law which would prevent a woman from terminating a pregnancy if she chooses. Let me say up front that I believe this to be the moral equivalent of thinning out the herd for most, since it seems to be one of the most fervent arguments of those who support this “right”.

What will we do with all these unwanted babies? Who will pay for them? The government can’t do it all. Besides, I have the right to choose whether I want to have this baby, and it’s none of your business.

Now, along comes Gardisal. Gardisal is being marketed as the newest miracle drug, a vaccine against the HPV virus, a sexually transmitted disease linked to cervical cancer.

Excellent! Great! Wonderful! Someone told me it could be the greatest medical breakthrough since Thalidomide.

You remember Thalidomide. It was the great miracle drug of the late 1950’s, used to relieve morning sickness and induce sleep in pregnant women. The side effects: Thalidomide stunted the growth of limbs and organs in the womb, and led to severe birth defects in the children of mothers who took Thalidomide.

Now, don’t get me wrong. I hope this stuff works, and if it is proven to be effective without any long term side effects, I will be the first to stand and cheer. The problem is that we just don’t know.

In West Virginia, Maryland, and Virginia, the states have introduced or are planning to introduce legislation that would make it mandatory for prepubescent females to receive this vaccine to protect them against the risk of HPV and in turn cervical cancer. This is where it gets really dicey.

As with many other drugs approved by the FDA, the long term effects are not known. If a parent should choose to have their child receive this vaccine, and it’s approved by the FDA, they can.

But to make it mandatory by statute is obscene. And where are the “pro choice” folks in this discussion. It appears they are lining up on the side of mandatory shots. If they aren’t, their silence on this issue is deafening.

Feminists should wise up. If you are for the right to choose, be for the right to choose. But if you are going to use the legislature and the courts to mandate your vision of the best interests of women, then your agenda is less rational and coherent than you have attempted to forward.

The long term effects of this vaccine have yet to be determined. Yet, the long term emotional and psychological effects of abortion on families in general and women in particular is well chronicled.

Disposable pregnancy (abortion) is forwarded, as is mandatory vaccination of females for sexually transmitted diseases. Yet the long term effects of these life decisions are not considered.

So, ladies, what is it:

Are you controlling the right to choose, or choosing the right to control?