Five Years After Katrina | Benefit Corporations | Iran Sanctions

From Tactical
to Strategic Risk Management’s Next Move

3rd Annual Risk

Management Education Review

September 2010 www.RIMS.org

sept_cover.indd 1 8/24/10 2:25 PM

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 Contents

Volume 57 | Issue 7

ForeFront
8 Five Years After Katrina
Five years after Katrina, New Orleans is finally
recovering despite the recession and the oil spill.

12 Rise of the B Corp

Along with more socially conscious shoppers come
more socially conscious companies.

14 D&O in the Land Down Under

Security class action lawsuits are on the rise in
Australia. And that means D&O fallout.

16 Q&A: Iran Sanctions

Tougher sanctions against doing business that assists

22
Iran were passed, but enforcement questions remain.

18 Time Line: Infamous Intelligence Leaks

The publication of 90,000 Afghanistan war
documents ranks alongside other historic leaks.
20 Risk Atlas: I Wouldn’t Eat That
Next trip to the baseball park, stick to the peanuts
and Cracker Jack—or you may never come back.
Details
6 Preface
Once upon a time, I thought risk management
was just a part of business as usual. Maybe someday.
42 Shelf Life
Reviewing Marketing Lessons from the Grateful Dead,
Power and Bury My Heart at Conference Room B.
44 Findings
Energy company ERM (or the lack thereof), VoIP
security, faltering confidence in brokers, cat bonds.
46 Hindsight
The latest facts and figures in risk.
Cover Story
From Tactical to Strategic:
Risk Management’s Next Move
Strategic risk management may not be the discipline’s endgame, but it
is the next evolution. Time to start thinking strategic and long term.
by Jared Wade and Craig Snyder
28 Head of the Class
Risk Management university programs are branching out.
by Emily Holbrook
34 The 10 Largest Risk and Insurance Schools
A rundown of the biggest risk management academies.
by Emily Holbrook
36 Safeguarding the Ivory Tower
Compared to managing a university’s risks, teaching looks easy.
by Jared Wade

48 Last Word
38 A Matter of Trust
The end of the internet. If an insurance buyer can’t trust her broker, who can she trust?
by Marcus Wagner

cover image tongro/corbis

Risk Management 1

toc_sept.indd 1 8/23/10 2:56 PM

 Identifying and quantifying risks is a vital step
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ERM | BUSINESS INTELLIGENCE | RMIS

CLAIMS & POLICY ADMINISTRATION
OSHA & SAFETY MANAGEMENT

8.125x10.875_Risk_Management.indd 1 3/5/10 11:15 AM

 Editor in Chief
Morgan O’Rourke Contact Us
Senior Editor All submissions and letters should be sent to:
Jared Wade
Editor Morgan O’Rourke
Emily Holbrook
Editor in Chief, Risk Management
Art & Production Manager
Karen Arbasetti 1065 Avenue of the Americas, 13th Floor
New York, NY 10018
ADVERTISING
Account Manager
Ted Donovan
T: 212.655.5917
F: 212.655.2693 morourke@RIMS.org
tdonovan@RIMS.org

CIRCULATION
Quality Circulation Services
Carole Ireland
T: 413.442.7300 F: 413.442.7333 212.655.5922
carole@qcs1989.com
Risk Management P. O. Box 9009
Maple Shade, NJ 08052-9609
Customer Service: 856.380.4113 | International: 800.901.6557 | Fax: 856.380.4101
Member of 212.655.2694

EDITORIAL ADVISORY COUNCIL
Shawn Adams, VA Hospital; Richard Carris, QBE the Americas; Ron Cooley, W.W. Grainger, Inc.; Mary Daniels,
www.rmmagazine.com
retired; James J. Duggan, Coty Inc.; Lance Ewing, Chartis; Delany Haj, Accenture Global Risk Management &
Insurance; Michael Liebowitz, New York University; Richard Sarnie, The ALS Group; Arnold Schanfield, Schanfield
Risk Management Advisors

The Risk and Insurance Management Society, Inc. (RIMS) is a not-for-profit organization dedicated to
advancing the theory and practice of risk management.

Risk Management Magazine (ISSN 0035-5593) is published 10 times per year, with combined issues in January/February and July/August,
by the Risk and Insurance Management Society, Inc. Offices at 1065 Avenue of the Americas, New York, NY 10018; 212.286.9364; Fax
212.922.0716. Volume 57, Issue 7. Copyright 2010 by the Risk and Insurance Management Society, Inc. All rights reserved. Reproduction
in whole or in part without permission is prohibited. The opinions expressed in articles are those of their authors and not the Risk and
Insurance Management Society, Inc. Subscription rates for RIMS members: $75. Non-members: $115. Microfilm editions obtained from
University Microfilms International, 300 N. Zeeb Road, Ann Arbor, MI 48106. CD-ROM editions may be obtained from Information Access
Co., 362 Lakeside Drive, Foster City, CA 94404. The full text of Risk Management is also available in the electronic versions of the Business
Periodicals Index. Periodicals postage paid in New York and additional mailing locations. POSTMASTER send change of address notices to
Risk Management Magazine, P.O. Box 3, Congers, NY 10920.

Risk Management 3

masthead_rm.indd 1 8/17/10 10:13 AM

 Understanding how FM global is diFFerent is akin to SEE
© 2010 FM Global. All Rights Reserved.

To learn more, visit fmglobal.com/insuranceevolved/light

to SEEING THE

An unexpected disaster can jeopardize your business. So if you remember just one thing about FM Global,
here it is: FM Global acts on the belief that the majority of loss is preventable. That’s why we link our
underwriting to loss prevention engineering. In fact, for 175 years we’ve been building a reservoir of
rich data framed by engineering and research to anticipate future risk and protect our clients. It’s an
approach that helps us identify, minimize and assume risk—and only FM Global does it.

It’s also why we created a $100 million state-of-the-art research campus and employ more than 1,700
engineers around the world to minimize your risk. It means that risk is reduced before a disaster can strike.
So even if clients do suffer losses, they tend to be smaller and less frequent, helping to ensure business
continuity. Plus, our claims service is unsurpassed in the industry. Perhaps that’s why our client base is
composed of one-third of the Fortune 1000 across industries—companies that can’t afford to shut down.
Underwriting through loss prevention engineering. That’s insurance evolved.

Insurance Evolved
 Preface

Learning the Ropes

When I first started writing about risk management back in 2002, I was often confused. Much to my surprise, a lot of
the things I had always assumed that any successful company would naturally have to do to just remain in business—let
alone become a thriving Fortune 500 firm—were not commonplace. Companies were obviously aware of most of the
significant risks they faced, but it seemed strange, and a little bit scary, that so many appeared to be using little more than
ad hoc methods to safeguard core operations. I was ignorant, and they were obviously doing something right, but it felt
like the equivalent of finding out that NASA was still measuring the re-entry pitch of the Space Shuttle with a slide-rule.
Sure, it might be working, but isn’t there a better way?
By the time 2008 rolled around, it started to seem obvious that, yeah, there is a better way. There had been altogether
too many major corporate catastrophes to presume that the status quo would suffice any longer. I remember one financial
industry expert telling me that banks—even some big banks that you have heard of—were often keeping track of multi-
million dollar securities trades by recording them in an Excel or Word files and just saving them on some community
server where they likely wouldn’t be seen again anytime soon. It seemed as though all this risk management talk—stuff that
my younger self didn’t even realize was “risk management” and just thought was “conducting business”—had little bearing
on the way companies actually operated. The rise of ERM and, now, strategic risk management is starting to change that.
It will be a slow process likely full of fits and starts, but it seems as though leadership is starting to see the discipline’s value.

–Jared Wade,
Senior Editor

Advertisers Index

MONITOR
Aon eSolutions, 2
www.aon-esolutions.com/tree
Autonomy, 2nd cover
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CNA, 37
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the news you need when you need it Chartis, 4th cover
www.chartisinsurance.com

For up-to-the-minute insight and analysis on the stories important to you, Ernst & Young, 13
www.ey.com/us/RIMS
visit the Risk Management Monitor, the blog of Risk Management.
FM Global, 4 & 5
www.fmglobal.com/insuranceevolved/light
Gardere Wynne Sewell LLP, 12

Breaking News
www.gardere.com
The Institutes, 31
www.theinstitutes.org
International Risk Management Institute, 15

editorials www.MLIS-CE.com/RIMS
Liberty Mutual, 35
www.libertymutualgroup.com/gl

Podcasts Paul Davis, 33

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RSA, 9, 24 & 25
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And more... Riskonnect, 3rd cover

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Swiss Re, 7
www.swissre.com/rimscanada
Zurich, 11
RiskManagementMonitor.com www.zurichna.com/choosetheright

6 September 2010

preface.indd 1 8/17/10 10:14 AM

 There’s a lot more to Swiss Re than reinsurance.
Isn’t it time you found out how much more?
Don’t let the name mislead you; there’s a lot more to Swiss Re than reinsurance. Commercial insurance, industrial insurance,
large corporate risks and specialty insurance. Insurance for aviation and space as well as environmental and commodity markets.
Financial tools like insurance-linked securities and catastrophe bonds. Yet every service we offer and every challenge we face for
our clients receives the same commitment and the same hands-on expertise. Why? Because across all industries, risk is the raw
material with which we work; what we create is opportunity.

Visit www.swissre.com/rimscanada to schedule a meeting with one of our experts or visit us at booth #72/#73
at the 2010 RIMS Canada Conference in Edmonton.

©2010 Swiss Re

Size 8.125-”X 10.875” - Live image area + 1/8” bleed set up as 4 color - file: 10-RiskManagemnt_Lion_Cat_coBrand_CRIMS_August6
 Fore front
Benefit corporations | Iran Sanctions | intelligence leaks | stadium food
ap photo/judi bottoni
Five Years After Katrina
It has been a rough five years for New
Orleans. On August 29, 2005, one of
the worst catastrophes in American his-
tory flooded 80% of the city, destroyed
more than 180,000 structures and
killed some 1,400 people. (Official
death toll estimates still—somehow—
vary by hundreds.) Just as the city was
starting to regain some semblance of
normalcy, the largest economic down-
turn in 79 years began, threatening to
halt any progress that was made in the
recovery. Then, a deepwater drilling rig
exploded in the Gulf of Mexico, initiat-
ing the largest environmental disaster in
U.S. history, putting tens of thousands
of locals out of work and threatening to
8 September 2010
forefront_katrina.indd 1
cover the city’s shores with oil.
As the Brookings Institution’s recent
“New Orleans Index at Five” report
aptly notes, “New Orleans is in the
throes of post-disasters recovery.” None
of this, however, has been enough to
cripple the Crescent City. “The city and
metro area have been recovering from
Katrina and, in fact, may even be on the
path to transformation,” concludes the
Brookings’ report.
The numbers back this up. The
population has rebounded to 354,850
(78% of pre-Katrina levels), and the
metro area has recovered 85% of its
jobs. This job growth has been tem-
pered by the recession, but although the
by Jared Wade
city lost 1.4% of its jobs between 2008
and 2009, it outperformed the rest
of the country, which lost a national
average of 4.3% of jobs. Moreover,
New Orleans has gained the right
jobs—those that will provide sustain-
able growth in an increasingly knowl-
edge-based economy. Workers are now
regularly finding employment in higher
education, legal services and insurance.
“In fact, by 2009, jobs in higher educa-
tion surpassed ship building and heavy
construction and engineering to be the
fourth largest economic driver in the
metropolitan area,” states the report.
It is not just higher education that
is creating optimism. The entire school
8/17/10 10:15 AM
 TAKING A RISK DOESN’T MEAN BEING AT RISK.

In today’s business environment, the risks and opportunities are constantly changing.
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of Canadian companies with national and international operations.

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We have over 300 years of experience in finding insurance solutions for our business
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©2010. RSA is a registered trade name of Royal & Sun Alliance Insurance Company of Canada.
“RSA” and the RSA logo are trademarks used under license from RSA Insurance Group plc.

27676 - RSA Risk Mang_RIMS.indd 1 11/08/10 2:34 PM

RSA.indd 1 8/11/10 2:58 PM
 Fore front

system has been reformed, and while
some are understandably skeptical of
the transition to a charter school-based
system, the majority opinion is that the
children of New Orleans are receiving
a better education now than they have
at any other point since Hurricane
Katrina—and perhaps well before then.
One measure that remains troubling,
however, is endemic poverty. The city
now has an unacceptable poverty rate
of 23%—a full 10% higher than the
national average. Still, this is actually
the lowest rate in New Orleans since
1979, and the city’s mayor, Mitchell
“Mitch” Landrieu, who assumed office
May 3, is now trying to publicize the
problem, not hide it under the rug as he
suggests has occurred in the past. “On
the poverty rate, that’s not really a good
number, but it is down from 28%,” he
told PBS Newshour in early August. “So
it’s trending in the right direction. And
for the first time, we’re actually count-
ing it, talking about it and coming up
with a strategy to deal with it.”
Until that strategy proves success-
ful, New Orleans residents will have
little to cheer. The spirit of those from
NOLA, something epitomized by the
2010 HBO television series Treme, is
resilient. The people have been through
the storm—literally and figuratively—
and it seems like better days are ahead,
even if the progress the city has seen
is not occurring universally. “You get
a tale of two cities,” said Landrieu on
Newshour. “Some people are doing bet-
ter. Some people are doing worse. Some
people are doing both at the same time.
I do think there is a sense of eternal
optimism here, though, as hard as it’s
been. And that always gives us contin-
ued hope.” n
New Orleans Recovery
by the Numbers
The city’s population is now back
above 350,000, nearly 80% of
pre-Katrina levels.
The number of total jobs in the
city has risen to 85% of the August
2005 total.
New Orleans’ poverty level is now
23%. Although 10% higher than
the national average and nothing
to celebrate, it is the lowest it has
been in New Orleans since 1979.
The number of students in the city
who attend public schools that
meet state quality standards has
increased from 28% in 2003 to
59% in 2009.

Stay in the Loop

Subscribe to Risk Management and get the latest in risk management news, opinion and
analysis delivered directly to your door every month. From the traditional worlds of insurance and
disaster preparedness to the emerging realms of reputation risk and environmental liability, we
have it covered. Your competitors are reading it. You should be, too.

For more information, visit

RMmagazine.com

10 September 2010

forefront_katrina.indd 2 8/17/10 10:16 AM

 Insurance
Risk Management

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0041_EN-US_NAC4_RiskManMag_206x276.indd 1 28.1.2010 14:41:59 Uhr

 Fore front
Rise of the B Corp
When Raphael Bemporad and Mitch
Baranowski met in 1990, they knew they
wanted to create a company that was
not only financially successful, but also
socially and environmentally responsi-
ble. So in 2003, they launched BBMG,
a branding and marketing firm. Though
they were eventually successful in their
mission-driven business plans, they
wanted more. They wanted to be recog-
nized as a beneficial company­—one that
stood out from the many greed-driven
corporations of modern business.
Enter B Lab, an organization that
supports “benefit corporations” by cer-
tifying such corporations, developing
their legal framework, recruiting like-
minded companies and helping them
access “purpose-driven” capital markets.
RecoveRy WaRRioRs
Clients trust us.
Adversaries respect us.
Gardere’s Policyholder Insurance Coverage Team
Jim Cooper Stephen Moll Samantha Trahan
John Pearson Beverly Godbey
Let us go to battle for you.
A law firm serving corporate policyholders for more than 25 years.
Stephen Moll
713.276.5833
smoll@gardere.com
Au s t i n Da l l a s Houston
12 September 2010
forefront_Bcorp.indd 1
BBMG, along with more than 300
other companies, is now a certified B
corporation, meaning it is not only
an environmental steward engaged with
its community, but it also has respon-
sibilities that include the interests of
employees, suppliers, consumers and the
environment.
And B corporations (also known as
“triple bottom line” businesses for their
consideration of people, planet and prof-
it) are now legal entities in some states,
giving them greater protection against
shareholder lawsuits. In April, Maryland
Governor Martin O’Malley became the
first to sign legislation to recognize this
new type of corporation. Vermont’s
Governor James Douglas followed suit,
signing into law Act 113, also known
Jim Cooper
713.276.5884
jcooper@gardere.com
M e x i c o Ci t y gardere.com
by Emily Holbrook
as the Vermont Benefit Corporations
Act. Other states working to pass similar
legislation include Colorado, New York,
North Carolina, Oregon, Pennsylvania
and Washington.
Andrew Kassoy, co-founder of B Lab,
claims if BP were a benefit corpora-
tion, it is unlikely the Gulf oil disaster
would have occurred. “If BP were a B
corp, they would have looked beyond
short-term profit and considered the
environmental and community impact
of their decisions,” he said. “Instead of
cutting corners, they would have evalu-
ated the risks and consequences of a spill
and decided to invest in better safety and
extraction methods. It was the constant
pressure to generate revenue, at all costs,
that ultimately led to the Gulf oil spill.”
Not everyone is onboard with B corps,
however. Corporate governance experts
worry about the rights of shareholders,
while some investors feel reluctant to
put money into something if a portion
of the returns will go somewhere else, no
matter if it is for a good cause.
In the aftermath of recent corporate
debacles (AIG, Lehman Brothers, BP
and Toyota to name a few), money-
hungry actions on the part of these
blue-chip corporations were unearthed,
turning the stomach of the everyday
American worker in the process. As a
result, many have abandoned the cut-
throat ways of these market share mon-
gers, choosing instead to spend their
money at socially responsible companies
whenever possible. Though some criti-
cize this movement, many consumers
feel drawn towards the “do-good” com-
panies. And, as evidenced by the actions
of several states, some legislators seem to
feel the same.
Years ago, when Ben & Jerry’s decid-
ed to donate 7.5% of pretax profit to
community projects, capitalists thought
it was crazy. Looking back, it now seems
the ice cream maker was just ahead of
its time. n
8/17/10 10:17 AM
 Business interrupted?
each of which is a separate legal entity. Ernst & Young LLP is a client-serving member firm located in the US.

It’s bad enough when natural disasters, property damage or some other
unexpected event disrupts operations. But then come the insurance claims —
Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited,

which involve detailed financial modeling, volumes of accounting documentation

and multiple submissions. We can help you through this complex process.
We work with financial executives and risk professionals to help you
assess loss, prepare claims and reach settlement. We help you
understand policies, analyze data and implement a claim
process that works so you can get back to business.
What’s next for your business?
ey.com/us/RIMS
© 2010 Ernst & Young LLP.
 Fore front

D&O in the Land Down Under by Mark T. Lingafelter

Security class action lawsuits are on

the rise in Australia as a new system of
funding this litigation has emerged in
recent years in response to increased in
regulatory enforcement activity. The
scope of the increase can be seen in both
the number of class actions filed as well
as the size of these cases.
Between 1999 and 2003, only six
security class actions were filed, accord-
ing to a report by NERA Economic
Consulting. That number shot up to
22 between 2004 and 2009, with six
filed in 2009 alone. Even more security
class actions are expected in the coming
months, as cases related to the financial
crisis of 2008 have not yet entered the
pipeline.
These class actions have targeted a
number of Australia’s largest compa-
nies, generating headlines nationwide.
In the last decade, for instance, secu-
rity class actions have been brought efforts. Shareholders, meanwhile, were regulators are getting tough on breach-
against companies such as insurer GIO reluctant to come forward because of es of Australia’s continuous disclosure
Australia Holdings Ltd, miners Sons the risk of incurring significant litiga- requirements. The Australia Securities
of Gwalia and Oz Minerals, gaming tion expenses. and Investment Commission began to
machine maker Aristocrat Leisure Ltd, Under the new litigation funding increase its enforcement of the con-
wheat exporter AWB and retail prop- arrangements, litigation funding firms tinuous disclosure rule after the 2001
erty company Centro Properties Ltd. pay the cost of the litigation (including collapse of HIH, one of the country’s
Although the litigation risk is far the fees to the law firm) and indemnify largest insurance companies.
lower in the Land Down Under than it the litigant against the risk of paying The continuous disclosure rule
is in the United States, it is, nonethe- the respondent’s costs if the case fails. requires companies to immedi-
less, a growing concern. In return, if the case succeeds, the litiga- ately inform the Australia Securities
Changes in the litigation environ- tion funder is reimbursed for the costs Exchange of developments that a rea-
ment in Australia began around the of the litigation and receives a percent- sonable person would expect to have
turn of the century with an increase age of the proceeds. The percentage is a material effect on share price. This
in regulatory enforcement of the contractually agreed with the litigant requirement may seem straightforward
country’s continuous disclosure rule. and is typically between 30%–40% of enough, but it can sometimes be dif-
Further changes occurred in 2006 due the proceeds. By allowing the litigation ficult for companies to determine the
to a court ruling that opened the way funders, which had been limited to appropriate time to disclose sensitive
for litigation funding arrangements, handling corporate insolvencies prior information. Even companies that do
which created financial rewards for to this ruling, to receive a percentage of their best to comply with this require-
pursuing this litigation that previously the proceeds­, class actions have become ment can end up as targets of a regula-
did not exist. too lucrative to ignore. tory inquiry.
Up until this time there was little Of the 22 class actions filed since To manage the security class action
financial incentive. Law firms were pro- 2004, 17 of them were financed by a risk, companies interested in doing
hibited from charging contingency fees, litigation funder, according to NERA. business in Australia should take steps
as is customary in the United States and Before 2004, none of them were. This to understand the country’s continu-
instead received only a flat fee for their rise has also come at a time when ous disclosure rule and do their best

14 September 2010

forefront_aussie.indd 1 8/17/10 10:18 AM

to comply with it. To help them meet protected as long as they take all reason- their insurers carefully. Companies
their disclosure requirements, Australia able steps to ensure that the company should look for an insurer with exper-
requires companies to have an inter- met its obligations—and as long as they tise in security class action claims. These
nal corporate governance committee believed the company was complying exposures can take years to work their
and explain their corporate governance with its disclosure obligation. way through the legal system, and it is
policy in their annual reports. With the sharp increase in secu- important for companies to have a car-
rier that understands the consequences
Between 1999 and 2003, only six security class of underwriting this type of business.
As the security class action indus-
actions were filed. That number shot up to 22 between try matures, the number of security
2004 and 2009, with six filed in 2009 alone. class action lawsuits will undoubtedly
grow, while the severity of the claims
The Australia Securities Exchange rity class actions, insurers have become will gradually decline. Currently in
has also established a set of best prac- much more vigilant about the risks they Australia, with litigation funders on
tices related to continuous disclosure. are willing to accept and will want to be the prowl and regulators watching
Companies are not required to comply comfortable with their insureds’ expo- carefully, risk is heightened, and com-
with all of the best practices, but they sure and business practices. Companies panies should proceed with caution.
are expected to discuss the steps they with strong corporate governance pro- No one wants to become tomorrow’s
are taking. cesses will be in the best position to headlines. n
While companies are at an increased obtain coverage at favorable terms and
risk of security class actions, directors conditions. Mark T. Lingafelter is managing direc-
and officers themselves are generally Likewise, buyers should consider tor of Chubb Insurance Co. of Australia.

Does Your Broker Really Know D&O?

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Insurance Specialist (MLISTM) on your broker team:

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Risk Management 15
 Q&A

Iran Sanctions
On July 1, President Barack Obama signed a new law to increase
U.S. sanctions against Iran. This came on the heels of a similar
UN resolution and the result is that more companies—both in the
United States and abroad—are now prohibited from doing business
that “directly or significantly assists” Iran’s petroleum industry. But
the law’s language is ambiguous in some areas—particularly when
it comes to how insurers must react. To help add some clarity, we
recently spoke with Pieter Van Tol and Bob Kyle, partners and in-

ap photo/richard drew
ternational law practitioners from the law firm Hogan Lovells.

RM: With the new sanctions in place,
what does this mean for companies
that have to do business in the region?
Bob Kyle: American companies have
for a long time basically faced a com-
plete trade and investment embargo
with regard to Iran. So the legislation
that preceded this bill—which is the
legislation that was amended by this
bill—affected foreign companies that
invested in Iran’s energy sector with $20
million or more.
This new bill is intended to retard—or
stop altogether—Iran’s development of
its petroleum resources. So the new
sanctions would apply to any company
that “directly and significantly” assists
Iran either in importing refined petro-
leum products or in developing Iran’s
refined petroleum production capacity.
Arguably, if you provide software to those
companies, that software company could
be affected. If you provide insurance for
the transportation of refined petroleum
products, that insurance company could
be affected. This bill expands the range
of sectors involved. Whereas the former
sanctions affected energy companies,
these are much broader.
RM: Obviously, insurance could touch
any number of those activities.
Pieter Van Tol: We don’t know whether
or not there were any efforts made
behind the scenes to remove the insur-
ance and reinsurance provisions, but
one bullet point headline here is that
they remained in the bill—and they are
very prominent. But I think the other two
major bullet points here are what else is
in the bill and what else is not in the bill.
I’ll clarify. What’s not in the bill is a
sense of clarity on how these sanctions
are going to work with regard to insur-
ance. For example, how will it apply to
coverage that was written before July 1,
when the bill was enacted? What hap-
pens if you have a reinsurance contract
that was written before July 1 and you
have claims after July 1? It seems like
the bill has prospective application, but
we don’t know as we sit here today
whether paying that claim is going to be
sanctionable.
Another question is how do the sanc-
tion thresholds apply? The thresholds
are set forth as $1 million per trans-
action or $5 million over a 12-month
period. What’s not clear in the bill is
whether that is $1 million in premium
or $1 million in cover. That is a tremen-
dous distinction in the insurance world
because $1 million in premium for one
transaction—or $5 million over a year—is
a lot. But if you’re talking about coverage
for an individual shipment of gas to Iran,
that’s not much.
The one thing that reinsurers and
insurers must do is continue asking
questions. It’s not over. You can’t just
say, “OK, here’s the bill—I’m going to
comply.” Even figuring out how to com-
ply is going to be difficult and insurers
will have to keep their eyes on the regu-
lations as they come out over the next
few months.
RM: It seems there is much to work out.
Van Tol: There is some good news: the
due diligence provision. It says that if
the president determines that a com-

16 September 2010

forefront_QA.indd 1 8/17/10 10:57 AM


pany has exercised due diligence in
coming up with a program to ensure it
doesn’t underwrite insurance or reinsur-
ance that supports the shipment of gas
to Iran then it will be excepted from the
sanctions. That is an interesting thing we
have not seen before. But we don’t know
how the regulators are going to view it
or how easy it will be to take advantage
of. But we do know from the buzz in the
industry that people are asking “how do
I go about putting a due diligence pro-
gram in place?”
Kyle: Another important part about the
due diligence provision, as I read it,
is that it assumes that if a company
concludes that it will no longer insure
or reinsure transactions that involve
Iran and then, for some reason, mistak-
enly, despite their due diligence, they do
engage in it, then the provision kicks in.
Van Tol: Here’s a real-life example: a
company sends out guidelines to all its
underwriters saying “look, there is a
new law, please make sure you do not
underwrite any new risks that involve
forefront_QA.indd 2
gas shipment to Iran.” But then one
slips through the cracks. Even though
you have put this system in place, you
have been careful about monitoring it,
and you have told your people not to
do it, mistakes happen. This gives the
president the ability to say, “you’ve been
trying to comply with the law, so we’re
not going to enforce against you for what
is essentially a mistake.”
RM: How has the industry responded?
Van Tol: Even before the bill was passed,
the only thing I’ve seen is insurers and
reinsurers saying they want to get out of
anything that comes even close to pro-
viding coverage for shipments to Iran.
The day after the bill was enacted,
Lloyd’s, the leading marine insurer, basi-
cally came out and said that it was
going to abide by the law and that it
didn’t want to be anywhere near this
risk. When [Lloyd’s] does something like
that, the whole market sits up and pays
attention.
RM: How difficult is that going to be?
Fore front
Van Tol: I don’t know the answer to that.
That’s one of the things we have to work
through and see how the regulations
are enforced. If you have an existing
contract, you can go to your counterparty
and tell them that there is a risk that
you will run afoul of the law if you pay a
claim under this contract. But depending
on what the wording is, they might not
be able to get out of the contract. And
their counterparties might say “there is
no provisions for you to get out of the
contract and, if I submit a claim, I expect
you to pay it.”
That’s the difficult situation. Does
the company pay that? And if they pay
it, will that be considered a part of the
sanctioned activity?
But the one thing that I have been
counseling people against is to not just
assume that this is yesterday’s news
and that they are “already out.” It is
important for people to keep an eye on
how this is being enforced. Things can
crop up that they may not have ever
even considered.
Interview by Jared Wade
Risk Management 17
8/17/10 10:57 AM
 Time Line

Infamous Intelligence Leaks

The July publication of more than 90,000 military documents detailing war operations in
Afghanistan on the whistleblower website Wikileaks.org was the largest leak of military intel-
ligence in U.S. history. Coming on the heels of a classified video that was leaked to the site
three months earlier showing an Apache helicopter firing on what were thought to be armed
insurgents but proved to be a group of civilians, the incidents have painted an unflattering
picture of U.S. military involvement in Afghanistan. While the political fallout remains to be
seen, the leaks demonstrate the increased vulnerability of all information—secret or not—in
the digital age. Of course, intelligence leaks have been with this country since its inception.
Here, we examine the most infamous. –Morgan O’Rourke

1773
The Hutchinson Letters
In 1772, while living in England as a colo-
nial representative, Benjamin Franklin
received a packet of letters written by
Thomas Hutchinson, the royal governor
of Massachusetts, from an unknown
source. Hutchinson criticized colonial
leaders, advocated a stronger British
military presence in Boston to quell the
budding rebellion and recommended
the removal of certain liberties. Franklin
sent the letters to friends in Boston
under instructions that they not be cir-
culated, but the letters were published
in the Boston Gazette in June 1773.
Hutchinson was subsequently forced to
go back to England, while Franklin was
reprimanded and returned to America
where he would be an instrumental fig-
ure in the American Revolution.
1848
The Treaty of
Guadalupe Hidalgo
In March 1848, reporter John Nugent
received the secret treaty to end the
Mexican-American War. His paper, the
New York Herald, published the treaty,
and Nugent was called into the Senate
for questioning. After refusing to reveal
his source, he was subsequently arrest-
ed and held for a month in the U.S.
Capitol before finally being released. Ten
years later, President James Buchanan
appointed Nugent as a special agent to
investigate American interests in what
is now British Columbia. It was a nice
gesture since historical evidence indi-
cates that Buchanan, while serving as
secretary of state, was the source of the
treaty leak.
1971
The Pentagon Papers
The so-called Pentagon Papers were a
top secret Department of Defense report
chronicling the United States’ involve-
ment in Vietnam from 1945 to 1967.
Leaked by military analyst and con-
tributor to the papers Daniel Ellsberg,
and published in the New York Times
in 1971, the papers revealed that the
U.S. government had misled the public
regarding its intentions and goals in the
war. The government tried to suppress
the publication of the papers, but the
Supreme Court would not allow it—and
an already unpopular war became even
less popular.
1972
Watergate
After five men were arrested for break-
ing into and illegally wiretapping the
Democratic National Committee head-
quarters in the Watergate complex in
Washington, D.C., Washington Post
reporters Bob Woodward and Carl
Bernstein received secret information
from a mysterious informant known as
“Deep Throat,” who implicated President
Richard Nixon in the resulting cover-
up. After a series of Senate investiga-
tions and with impeachment looming,
Nixon resigned in 1974. In 2005, after
decades of speculation former FBI agent
W. Mark Felt was outed as Deep Throat.

18 September 2010

forefront_timeline.indd 1 8/17/10 10:22 AM


While there has thus far been little actual political fallout from July’s release of 90,000 military documents about the war in Afghanistan, the incident
now ranks alongside a long line of high-profile leaks that have become part of—and in some cases changed—American history.
1986
Iran-Contra
The Iran-Contra affair began when an
Iranian militant reported in a Lebanese
magazine that the United States was
selling arms to Iran, despite an arms
embargo against the country. The report
also revealed that the United States
was providing weapons to Contra rebels
fighting in Nicaragua in exchange for
the release of American hostages. A
number of convictions resulted, includ-
ing those of National Security Advisor
John Poindexter, former defense sec-
retary Caspar Weinberger and Marine
Lieutenant Colonel Oliver North, who
had been in charge of the operation. In
1992, President George H.W. Bush par-
doned all those involved.
forefront_timeline.indd 2
2003
The Valerie Plame Affair
In July 2003, in a New York Times
op-ed piece, former U.S. Ambassador
Joseph Wilson criticized the George W.
Bush administration for the reasons it
gave for invading Iraq and contradicted
a statement made by President Bush
that Iraq had tried to purchase yellow-
cake uranium from Niger. In response,
Washington Post columnist Robert
Novak refuted Wilson’s account and
revealed that his wife, Valerie Plame,
was a CIA operative. Wilson accused the
White House of leaking the information
as retaliation for his op-ed piece, but the
resulting investigation only led to the
conviction of Lewis “Scooter” Libby, Vice
President Dick Cheney’s former chief of
Fore front
ap photo/brennan linsley
staff. His sentence was later commuted
by President Bush.
2004
Abu Ghraib
In early 2004, accounts began to sur-
face that prisoners in the Abu Ghraib
military prison in Iraq were being tor-
tured and abused by their American
captors. But it was not until April, when
both a 60 Minutes II news report and an
article in the New Yorker by investiga-
tive journalist Seymour Hersh featured
leaked photographs depicting graphic
instances of abuse, that public uproar
began. Ultimately, 11 soldiers were con-
victed on charges stemming from the
incidents with some receiving prison
sentences of up to 10 years. n
Risk Management 19
8/17/10 10:22 AM
 Risk Atlas

At Safeco Field,

WAshington where the MLB’s Seat-

tle Mariners play, one food
stand was cited for employees
who did not properly wash their
hands. At the Seattle Seahawks’
Qwest Field, approximately 15
locations were cited for not
having adequate hand-
washing facilities.

At Invesco Field,
home to the Denver
Broncos, inspectors found
fruit flies in bottles of whiskey
at three of the stadium’s bars.
Keeping with the flies-in-the-liquor
theme, at the Pepsi Center, where
the Nuggets and Avalanche play,
inspectors found flies in a
bottle of cognac.

ColorAdo

At U.S. Airways
Center in Phoenix,
one location faced possible
closure in December after inspec-
tors found mouse droppings and,
upon re-inspection, found dozens of
flies and a live roach in the dish room.
Also in Phoenix, at the Jobing.com
Arena, home of the NHL’s Coyotes,
one citation claimed inspectors
witnessed a worker scooping
ice with his bare hands.
Home to the
Mavericks (NBA) and
the Stars (NHL), the American
Airlines Center in Dallas was cited
for food stands carrying expired milk,
brown lettuce and employees caught
ArizonA drinking or eating in the stand. Around the
corner at the Dallas Cowboys’ stadium,
72% of vendors were cited for violations
including inadequate hand-washing
facilities and hot dogs kept at 71 de-
grees, almost half of the required
holding temperature of 135
degrees.
texAs

i Wouldn’t eAt thAt

Stadiums throughout the nation cater to millions of sports fans each year. But the food
and drinks some teams are selling pose serious health risks to their spectators. From
vermin droppings to mold in ice machines and from Los Angeles to Boston, stadium
food is becoming feared fare. ESPN compiled a list culled from inspection reports for
each MLB, NBA, NHL and NFL venue. Here, we point out some of the most unsanitary.
–EH

20 September 2010

forefront_riskatlas.indd 1 8/17/10 11:00 AM

 Fore front
The Mets’
baseball stadium, Citi
Field, reported several viola-
tions relating to cooked chicken
stored at 70 degrees, which is 30
degrees warmer than allowed. But that
pales in comparison to what was found at
Madison Square Garden where the NBA’s
Knicks and NHL’s Rangers play. At one
food stand alone, inspectors found 53
mouse droppings underneath cash
registers and in front of food
The NFL stadium prep areas.
that the Detroit Lions call
home is rife with unsanitary
conditions. One location was cited
New york
11 times in the past six years after
inspectors reported seeing employees
michigan
who did not wash their hands. The Red
Wings’ ice rink fared only slightly better.
Joe Louis Arena reported 52% of ven-
dors in violation with one location
cited for roaches found below a
soda dispenser.

The Bank of
America Stadium, home
to the NFL’s Carolina Panthers,
reported numerous violations.
Among the infractions, inspectors
witnessed one worker eating from a
fryer basket. Even worse, at the RBC Cen-
north
ter where the Carolina Hurricanes play
hockey, inspectors witnessed employees
carolina
handling raw chicken while loading
fryers then handling cooked food
without changing gloves or
washing their hands.

Holy citations!
Tropicana Field, home to
MLB’s Tampa Bay Rays, wins
the number one spot in this rank-
ing with a whopping 100% of ven-
dors receiving critical citations, most Florida
of them addressing dirty countertops,
utensils and equipment. Further north,
the Orlando Magic’s Amway Arena
reported 75% of food vendors with
critical citations and Tampa Bay’s
Raymond James Stadium
reported 84%.

Risk Management 21

forefront_riskatlas.indd 2 8/17/10 10:55 AM

 From Tactical
to Strategic
22 September 2010

strategic.indd 2 8/17/10 10:33 AM

 Risk Management’s Next Move
R
isk, for lack of a better word, is good. Without
it, there would be no successful businesses. Or,
rather, there would only be successful business,
as being successful would be so easy that any
start-up would have an idyllic path to quarterly
revenue bonanzas. Risk is vital to the business world so that
those organizations that are able to overcome their challenges
can show the rest how it is done.
Historically, most companies that have grown into house-
hold names have managed their risks well. Well enough any-
way. The thriving company has mitigated its true, existential
threats through a business model that ensures that, say, man-
ufacturing costs, no matter the occasional unforeseen price
spike, will never outpace earnings or through vigilant leader-
ship that ensures that a rival will not dominate the market to
the point that the company can no longer compete.
Typically, however, the risk manager has not been involved
in this strategic level planning. The ultimate strategy and
future plans of the company are determined by the CEO, the
board and (maybe) a handful of other senior executives. The
rest of those involved in charting the course for the future
are often consulted on a need-to-know basis to work out the
specifics of the operation, helping to refine the operational
processes in their area of expertise. But they are rarely asked to
assess the big picture.
In the past, that method has, much of the time, worked
fine. But the game has changed. The risks companies face
today have multiplied. CEOs and boards have always faced a
large number of threats, but they knew where to look for them
and were generally able to take a glance back, gauge the situa-
tion and keep their foot on the gas, focusing—as always—on
the road ahead.
But in 2010, risks no longer always come from where the
CEO has been trained to look. Well, they still come from
there—but they come from everywhere else, too. There are a
full 360 degrees to monitor now, and the distinction is akin to

daniel smith/corbis
the difference between a car driving down a calm, four-lane road
with expected intersections and a flying car navigating a chaotic,
unregulated airspace where traffic may come from all sides.
For a company like Toyota that is undergoing a prolonged
consumer confidence crisis, its problems were rooted in faulty
manufacturing and complacency towards safety. But whereas
in the past the main fallout of these failings may have been
legal liabilities resulting from the accidents that occurred and
the costs of conducting a product recall, the greatest asset at
risk today is Toyota’s reputation. The lawsuits can be covered
and the recalls can be paid for. But if the typical car buyer,
someone who has a wider selection of safe cars to choose from
than ever before, decides that Toyota is a brand he no longer

by Jared Wade
strategic.indd 3 8/23/10 3:10 PM
SFW
ears www.rsabroker.ca
Sept
ment
gust
Sept 1764 1844
gust We insure the home of We cover Down House,
Captain James Cook, prior to where Charles Darwin
412 the first of his legendary voyages wrote On the Origin of Species
t

al

1710 1959 1961 1

The Sun Fire Office is established The Sun Insurance Office merges with The Western Assurance Company is S
The Alliance Assurance Company to acquired and later amalgamated with R
form Sun Alliance Insurance Limited Royal Insurance Company of Canada R

from the epic to the everyday,

We’ve BeeN UNderWritiNG proGreSS SiNce 1710.

HM001618_RiskManage_Sept.indd 1
RSA.indd 2 8/5/10 11:25 AM
 2007 2009 2009
When a major food bank is We’re on the scene We provide a speedy
threatened with closure, our of the Halifax fire response in the wake
support helps keep it open of the Vaughan tornado

1996 2007 2008 2010

is Sun Alliance Group merges with Canadian Northern Shield Royal & Sun Alliance becomes The RSA Group is
th Royal Insurance Holdings, to become becomes part of RSA Insurance Group plc 300 years old
da Royal & Sun Alliance Insurance Group plc Royal & Sun Alliance Canada

Our business began life in 1710 with the establishment of
the Sun Fire Office. And this year, as we celebrate our
300th anniversary, we are believed to be among the world’s
oldest insurers.
The principle that drove us to succeed in the embers of the
Great Fire of London is the same one that drives us today:
an unshakable belief that insurance should enable progress.
From the epic to the everyday, we continue to help the
world’s people and businesses move forward. To learn more,
visit www.rsabroker.ca

04/08/2010 15:51
RSA.indd 3 8/5/10 11:26 AM
 Strategic Risk Management
trusts, and if auto sales do not return to
the company’s prior expectations, then
even a seemingly sound business strat-
egy of international market share acqui-
sition and forward-thinking hybrid
innovation may not make a difference.
Such reputation concerns are among
the most frightening risks that compa-
nies are just now learning how to man-
age—just ask AIG or BP—but they
are far from the only major emerging
threat. Supply chain disruptions, cli-
mate change and extreme weather,
global and local regulatory uncertainty,
counterparty default and dozens of
other risks now pose greater challenges
to companies than ever before.
Enter strategic risk management.
Now, risk managers are becoming
involved in the senior-level decision-
making process, and leaders are rely-
ing on their analysis to not just protect
shareholder value—but to help create
it. Because it is only by avoiding known
pitfalls that the company can navigate
its way towards greater profits and
success. The company needs to know
where the pitfalls are before deciding on
a strategic direction and the risk manag-
er is in a natural position to point them
out to leadership.
It is the next natural evolution of risk
management. First, risk managers were
insurance buyers. Then they were the
stewards tasked to protect the compa-
ny’s operational exposures by more cre-
ative means. Next came enterprise risk
management (ERM), and the scope of
The company needs to know where the pitfalls
are before deciding on a strategic direction and
the risk manager is in a natural position to
point them out to leadership.
risks that they were tasked with manag-
ing became wider—as did the net they
were given to explore risks throughout
the organization. But even with a great-
er license to work more closely with all
areas of the operation and implement
new loss control protocols, many found
26 September 2010
strategic.indd 4
that their authority did not match the
task. How can you manage every risk—
particularly emerging threats—when
you do not truly understand the long-
term direction of the company?
Including risk management into
strategic-level planning allows the func-
tion to better serve the organization. If
How can you manage every risk—
particularly emerging threats—when you
do not truly understand the long-term
direction of the company?
a strategic shift or major new operation
begins, the CEO can then tell the risk
manager “figure out how to minimize
these new risks.” The risk manager can
then go out and tactically approach all
of the related risks and mitigate each
of them. It is what risk managers have
been doing for a long time, and it is
something at which they excel. Take
a potential problem and make it less
likely to become one. Just another day
at the office.
But involving the risk management
department from the beginning makes
more sense and allows the people who
best understand the potential perils of
the company to help guide leadership
decisions. Risk management can be
valuable at all levels of the organization,
but if a company only allows it to effect
change below the leadership level, the
company is not maximizing a resource
that can both prevent major losses and
drive earnings by telling the board
which risks are the good risks.
Conceptually, it is a lot like chess. A
casual player—even a very good casual
player—generally plays the game think-
ing only about how to maximize each
move. Tactically, each move might be
fine. But the lack of a strategic, coordi-
nated attack lowers the chance of win-
ning and will always hold the player
back—particularly when faced with
tough competition. Without a larger
plan, even the best tactical moves offer
merely a temporary advantage. At the
end of the game, those earlier deci-
sions, no matter how beneficial they
seemed at the time, will only prove to
have been in the player’s best interest if
they helped him protect his king and,
ultimately, checkmate the king of his
opponent.
For the risk manager, the strategic
view should be similar. First, protect
assets first by insulating the core, long-
term objectives from the largest risks
the company faces. Then, find ways to
use that knowledge to increase share-
holder value.
To truly do that, however, the risk
manager needs a clear understanding of
the corporate strategy and approach to
risk—something that can only truly be
attained through discussions with the
board and senior leadership.
Ultimately, taking risks is what cre-
ates shareholder value. Innovation and
entrepreneurship simply must be bal-
anced against the potential downside.
As long as the top leadership is com-
fortable with the risks presented by the
most informed opinions of those in
the organization, the agreed-upon risk
appetite level, in and of itself, does not
matter. Both high-risk and risk-averse
companies have been very successful.
All that matters is that everyone under-
stands the strategy and that the strategy
is based on an informed understanding
of how high the risk levels are. n
8/23/10 3:11 PM
 Strategic Risk Management
trusts, and if auto sales do not return to
the company’s prior expectations, then
even a seemingly sound business strat-
egy of international market share acqui-
sition and forward-thinking hybrid
innovation may not make a difference.
Such reputation concerns are among
the most frightening risks that compa-
nies are just now learning how to man-
age—just ask AIG or BP—but they
are far from the only major emerging
threat. Supply chain disruptions, cli-
mate change and extreme weather,
global and local regulatory uncertainty,
counterparty default and dozens of
other risks now pose greater challenges
to companies than ever before.
Enter strategic risk management.
Now, risk managers are becoming
involved in the senior-level decision-
making process, and leaders are rely-
ing on their analysis to not just protect
shareholder value—but to help create
it. Because it is only by avoiding known
pitfalls that the company can navigate
its way towards greater profits and
success. The company needs to know
where the pitfalls are before deciding on
a strategic direction and the risk manag-
er is in a natural position to point them
out to leadership.
It is the next natural evolution of risk
management. First, risk managers were
insurance buyers. Then they were the
stewards tasked to protect the compa-
ny’s operational exposures by more cre-
ative means. Next came enterprise risk
management (ERM), and the scope of
The company needs to know where the pitfalls
are before deciding on a strategic direction and
the risk manager is in a natural position to
point them out to leadership.
risks that they were tasked with manag-
ing became wider—as did the net they
were given to explore risks throughout
the organization. But even with a great-
er license to work more closely with all
areas of the operation and implement
new loss control protocols, many found
26 September 2010
strategic.indd 4
that their authority did not match the
task. How can you manage every risk—
particularly emerging threats—when
you do not truly understand the long-
term direction of the company?
Including risk management into
strategic-level planning allows the func-
tion to better serve the organization. If
How can you manage every risk—
particularly emerging threats—when you
do not truly understand the long-term
direction of the company?
a strategic shift or major new operation
begins, the CEO can then tell the risk
manager “figure out how to minimize
these new risks.” The risk manager can
then go out and tactically approach all
of the related risks and mitigate each
of them. It is what risk managers have
been doing for a long time, and it is
something at which they excel. Take
a potential problem and make it less
likely to become one. Just another day
at the office.
But involving the risk management
department from the beginning makes
more sense and allows the people who
best understand the potential perils of
the company to help guide leadership
decisions. Risk management can be
valuable at all levels of the organization,
but if a company only allows it to effect
change below the leadership level, the
company is not maximizing a resource
that can both prevent major losses and
drive earnings by telling the board
which risks are the good risks.
Conceptually, it is a lot like chess. A
casual player—even a very good casual
player—generally plays the game think-
ing only about how to maximize each
move. Tactically, each move might be
fine. But the lack of a strategic, coordi-
nated attack lowers the chance of win-
ning and will always hold the player
back—particularly when faced with
tough competition. Without a larger
plan, even the best tactical moves offer
merely a temporary advantage. At the
end of the game, those earlier deci-
sions, no matter how beneficial they
seemed at the time, will only prove to
have been in the player’s best interest if
they helped him protect his king and,
ultimately, checkmate the king of his
opponent.
For the risk manager, the strategic
view should be similar. First, protect
assets by insulating the core, long-term
objectives from the largest risks the
company faces. Then, find ways to use
that knowledge to increase shareholder
value.
To truly do that, however, the risk
manager needs a clear understanding of
the corporate strategy and approach to
risk—something that can only truly be
attained through discussions with the
board and senior leadership.
Ultimately, taking risks is what cre-
ates shareholder value. Innovation and
entrepreneurship simply must be bal-
anced against the potential downside.
As long as the top leadership is com-
fortable with the risks presented by the
most informed opinions of those in
the organization, the agreed-upon risk
appetite level, in and of itself, does not
matter. Both high-risk and risk-averse
companies have been very successful.
All that matters is that everyone under-
stands the strategy and that the strategy
is based on an informed understanding
of how high the risk levels are. n
8/23/10 3:57 PM
 Head e by Emily Holbrook

of th
Class
The 3rd Annual Risk Management and Insurance Education Review

28 September 2010

education_main.indd 2 8/17/10 10:36 AM

 J
ust as risk management has
risen to prominence in the
business world, so too has the
discipline gained ground as a
vital area of study in colleges and uni-
versities, both in the United States and
around the world. And with more and
more risk management profession-
als nearing retirement age, the demand
for new talent has never been greater.
Luckily for companies looking for grad-
uates schooled in this area, risk manage-
ment and insurance (RMI) undergrad-
uate departments in close to 40 colleges
across the nation are meeting this need
by awarding degrees to a higher num-
ber of students each year. As Jack P.
education_main.indd 3
Gibson, president of the International
Risk Management Institute stated in a
recent report regarding risk and insur-
ance education, “RMI programs can be
an important tactic to help insurance
organizations respond effectively to the
talent crisis the insurance industry will
face over the next 10 to 15 years when
baby boomers retire.”
But these university-level RMI pro-
grams are not merely graduating a
record number of students, they are also
tailoring the coursework to meet mod-
ern risk management requirements.
“Major changes include incorporating
more traditional and enterprise risk
management into RMI curriculums,”
said R.B. Drennan, faculty representa-
tive for Gamma Iota Sigma, the inter-
national fraternity for risk and insur-
ance management professionals. Some
schools are turning to nontraditional
topics of study by putting more of an
emphasis on alternative financing solu-
tions other than insurance.
Risk Management 29
8/17/10 10:36 AM
 Risk Management Education
New and Innovative Schools
Since our last look at risk and insur-
ance education last year, there have
been a few newcomers to the field. For
starters, the State University of New
York (SUNY) Oswego announced
in July that it is founding a new edu-
cational center. The Gordon A. Lenz
Center for Finance, Insurance and Risk
Management will support the first ded-
icated four-year program to focus on
insurance and risk management stud-
ies in the entire SUNY system, which
includes 64 schools. Named after a
well-known insurance industry inno-
vator, the Lenz Center will focus on
health care risk management, but also
support various other types of student
education and continuing professional
education, while also devoting atten-
“RMI programs can be an important tactic to help insurance organizations respond
effectively to the talent crisis the insurance industry will face over the next 10 to 15 years.”
tion to social responsibility and ethics
within the RMI field.
Also new to the RMI education
arena is East Carolina University.
The Greenville, North Carolina-based
school started its program with a gift
from the Independent Insurance Agents
of North Carolina. Dr. Brenda Wells
was hired to direct and build the pro-
gram, which began in August 2009
and graduated its first student just last
month. Wells has proved ambitious in
her leadership of the young program.
She formed the ECU Society of Risk
Management and Insurance, trav-
eled with students to the Independent
Insurance Agents and Brokers of
America’s “Big I” legislative conference
in Washington, D.C., and the Young
Agents convention in Myrtle Beach,
South Carolina, and has secured several
representatives from big-name insur-
ance companies to lecture her students.
But Wells aims to be more than just
an instructor of risk management and
insurance. “I offer my students my cell
phone number so they are free to call
me anytime, for any reason,” she said.
30 September 2010
education_main.indd 4
“Whether it’s for a study question or for
insurance purchasing advice or how to
file a police report after a car theft. So
they have the dedication of the faculty
as well.”
Dedicated faculty can also be found
at the University of North Texas. The
UNT undergraduate RMI program was
established in 1949 and has the dis-
tinction of being one of the oldest and
most innovative programs of its kind in
the nation. In addition to being active
with industry partners such as the Risk
and Insurance Management Society
(RIMS) and the Insurance Council of
Texas and Chartered Property Casualty
Underwriters (CPCU), UNT is active
with the Risk Manager in Residence
program, courtesy of a grant from the
Spencer Educational Foundation. The
program places professional risk man-
agers in a classroom setting at those
universities that are awarded grants. If
the ambitions of UNT’s RMI program
do not impress, maybe its size will.
Currently, there are more than 500 stu-
dents enrolled in various risk manage-
ment and insurance classes within the
school.
Financial Risk Management of Management. “Coincidentally, the
Since the financial crisis began, several
courses focused on financial risk man-
agement have sprung up in MBA class-
rooms from small colleges to Ivy League
universities. Harvard University added
a second-year elective to its MBA pro-
gram that addresses the challenges and
responsibilities that face the leaders
in the financial services industry. The
course, “Managing the Financial Firm,”
covers a wide array of topics from bank-
ing and insurance to loans and broker-
age and uses case studies covering the
usual suspects, such as Lehman Brothers
and Bear Stearns.
New York University has followed
suit, but has tailored its curriculum
to professionals within the field. Its
School of Continuing Professional
Studies offers advanced certificates in
financial risk management for those
who are already in the workforce and
are looking to advance their knowledge
of financial risk and, hopefully, their
career. Classes cover the measurement
and management of financial risk, as
well as the nature and operation of
markets in futures, options, swaps and
other derivative instruments.
Another school taking on the
financial crisis in the classroom is the
Kellogg School of Management at
Northwestern University. The school
is beginning to develop a growing repu-
tation in the area of risk management.
A new course being added to the MBA
curriculum next year is “Enterprise and
Operational Risk Management.” This
class examines risk in a corporate con-
text, giving students a more compre-
hensive view of risk itself. “Ultimately,
risk management in practice is about
understanding the role that uncertainty
and human biases play in our decision
processes,” said Russell Walker, Ph.D.,
assistant director of the Zell Center for
Risk Research at the Kellogg School
current economic climate provides an
excellent context for our research and
great dialogue among our students.”
Crisis Control in the Classroom
There is a relatively new breed of
classes on the risk management edu-
cation spectrum­— courses focusing
on disaster risk management. The
University of Maryland, for example,
will soon offer classes with titles such
as “Counterterrorism” and “Terrorism,
Antiterrorism and Homeland Security.”
Additionally, Clarkson University in
Potsdam, New York, assures that its
environmental engineering majors will
be prepared to tackle such frightening
8/17/10 10:37 AM
 issues as global warming, acid rain and
pollution.
Knowledge is power.
Greg Shaw is the co-director of the
Institute for Crisis, Disaster and Risk
How powerful are you?
Management at George Washington
University, a Washington, D.C.,
school that has placed great importance
on disaster preparedness and response.
The institute was chartered in 1994
under the leadership of engineering
and political science professors, and
today it instructs 60 to 80 students
each semester with an influx of inter-
ested students from across the GWU
educational departments and other
local universities.
According to the Heritage
Foundation, a Washington, D.C.-based
think tank, “academic institutions have
become a core member of the national
homeland security enterprise.” That
statement rings true if you consider
the proliferation of disaster risk man-
agement courses on campuses nation-
wide. According to Shaw, in 1998, the
GWU program was one of less than
20 emergency management-focused It’s really pretty simple. When you’re more knowledgeable
programs in the United States. Today,
you make better business decisions. And better business
there are more than 150 undergradu-
ate and graduate programs categorized decisions yield measurable and meaningful results.
as emergency management and another The Institutes’ proven knowledge will help you achieve powerful
50 plus programs categorized as home- results with a variety of flexible, customer-focused options, including:
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• Respected Credentials—Only The Institutes have the wide range of
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rienced practitioners, want to make a and many more. More than letters after your name, they provide
difference and recognize the absolute in-depth understanding and practical skills.
necessity for professional emergency
• Flexible Online Learning—Enhance your technical knowledge in
management at all levels of government a few hours without leaving the office. The Institutes’ cost-effective
and across all sectors,” said Shaw. There courses cover accounting to underwriting and everything in between.
has been no shortage of natural disasters
• Continuing Education—Through our new CEU.com business unit, we
in 2010—yet another reason students
deliver quality, affordable, and convenient online CE courses. We’ll even
are choosing the disaster risk manage- keep track of your credits for you. Visit www.CEU.com to learn more.
ment track.
• Custom Applications—The Institutes collaborate with corporate
customers to leverage our unique content and develop customized
Studying Abroad solutions that achieve their unique organizational goals.
The study of risk management and
• Insightful Analysis—Our IRC division conducts vital public policy
insurance reaches well beyond the class-
research on important current issues in property-casualty insurance
rooms of the United States. The Great
and risk management.
White North is no slouch when it comes
to RMI education. The University of Visit www.TheInstitutes.org/options for more information and videos.
Calgary’s Haskayne School of Business
offers an RMI concentration—the only
program of its kind in Western Canada.
Students must take a required six cours-
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es in the discipline that teach risk man-
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education_main.indd 5 8/17/10 10:37 AM

 Risk Management Education

Also in Southeast Asia, the Nepal

The University of Maryland will soon offer classes with titles
such as “Terrorism, Antiterrorism and Homeland Security.”
agement strategies and processes within
the insurance industry.
Across the Atlantic, Scotland’s
Glasgow Caledonian University offers
study in the discipline and claims to
be the only school in the UK to offer
an honors degree in risk management.
The school also boasts that its graduates
often command starting salaries well
above entry level.
On an even higher educational level,
the Copenhagen Business School
(CBS) offers a Ph.D. in financial risk
management. With three doctoral
schools, CBS prides itself on being one
of the world’s largest business schools
and among the 10 largest in the world
for Ph.D. programs.
Even further east is the Nanyang
Technological University in Singapore.
In January, the school launched
the Institute of Catastrophe Risk
Management (ICRM), a program that
focuses on catastrophe-triggered insur-
ance and reinsurance risks, sovereign
risk, societal risk and other nontradi-
tional risks. The ICRM is the first mul-
tidisciplinary risk management research
institute of its kind in Asia and among
only a handful of such centers world-
wide. ICRM professors work on risk
assessment and management of natural
and man-made catastrophes in collabo-
ration with risk insurers and modelers
from the finance, insurance and rein-
surance industries.
Engineering College offers a masters in
disaster risk management that focuses
on natural and human-induced disasters
that affect the Nepal region. Courses
such as “Tools in Disaster Management,”
“Rehabilitation and Reconstruction”
and “Seismic Hazard Management” are
offered to students in the college’s full-
time (two-year) or part-time (four-year)
program.
As history has shown, natural and
man-made disasters will never cease,
financial firms will continue to take on
risk, terrorists will remain set on plot-
ting malicious attacks around the world
and Mother Nature will continue to
unleash her power on the earth. And
these unfortunate events will provide
a wealth of opportunity for the grow-
ing number of students brave enough
to tackle the discipline of risk manage-
ment and insurance. n

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education_main.indd 6 8/17/10 10:38 AM

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 The 10 Largest Risk and Insurance Schools by Emily Holbrook

When it comes to teaching risk management, bigger is not always better. But the largest programs are respected for both
their size and the future risk managers they teach. Here is a rundown of the top 10 schools ranked by the number of stu-
dents they graduated during the 2009-2010 school year. For a more in-depth list, visit RMmagazine.com.

1. University of Georgia 129

UGA boasts the largest undergraduate program of its kind in the United States, and its Terry College of Business grads have gone on to work for HBO, Honeywell
and Pepsi. “RMI’s energetic, impassioned faculty members are adept at making textbook material come alive,” said Dr. Robert Hoyt, UGA’s chair of insurance.

2. Temple University 120

This Philadelphia school first offered risk management and insurance courses in 1913. With the help of the local insurance industry, Temple’s RMI program has
grown exponentially since then with approximately 800 students taking the program’s “Introduction to Risk Management” course each semester. More than 130
students participated in internships over the summer, and nearly every student is involved in Gamma Iota Sigma, the international risk management fraternity.

3. University of Wisconsin-Madison 94
UW-Madison’s RMI program began in 1938, and one of its students, John S. Bickley, went on to form the International Insurance Society. The school’s long tradi-
tion of excellence in teaching, research and service was given a boost this year with the formation of the Risk Management and Insurance Alumni Association.

4. Appalachian State University 55

Though a relative newcomer compared to the top three, App State is a powerhouse. The program began in the late 1970s and has grown steadily. The school’s
RMI Society invites professionals to speak to students each month and schedules philanthropic events such as working with Habitat for Humanity.

5. Florida State University 44

FSU’s RMI department houses two insurance centers—the Florida Catastrophic Storm Risk Management Center (Cat Center) and the Center for Insurance
Research. Students are active with Florida industry associations and have travelled to the RIMS Annual Conference and Exhibition for the previous eight years.
While enrolled, students are encouraged to pursue professional designations and participate in job shadowing.

6. Georgia State University 39

Founded in 1953, the J. Mack Robinson College of Business at GSU is home to one of the largest risk management research centers in the world. And GSU is
keeping pace with the industry—the school recently created the Center for Economic Analysis of Risk, a research center that, when fully operational, will have a
multi-million dollar annual budget with a network of more than 100 researchers worldwide.

6. The University of Hartford 39

Hartford’s RMI program has the distinction of receiving the Spencer Educational Foundation’s “Risk Manager in Residence” grant for the past 11 years. And for
the past 20 years, students from the program have been chosen to participate in the Anita Benedetti student involvement program. The R.C. Knox Center for
Insurance and Risk Management Studies also provides financial support for student clubs and hosts symposia that majors are invited to attend.

8. Olivet College 30
Last year, Olivet unveiled its Risk Management and Insurance Center, and this year, the school partnered with the Thomas M. Cooley Law School to assist with
the creation of the Master of Laws in Insurance law degree (one of only two in the nation). The school’s RMI students also host the “Extreme Risk Takers” surplus
lines insurance symposium for other schools.

8. University of North Carolina-Charlotte 30

UNC Charlotte’s Belk College of Business enjoys generous support from the North Carolina insurance community.
Since 2005, the school’s RMI program has brought in more than $90,000 from local industry associations and
individuals, including the Carolinas Chapter of RIMS, North Carolina Association of
Insurance Agents, North Carolina Insurance Federation and Allen Tate Insurance.

10. Ball State University 28

This Muncie, Indiana, school has established a formidable RMI program since its incep-
tion in the late 1980s. The program has its own advisory board made up of industry
leaders, and RMI students have earned prestigious scholarships, including the Angus
Robinson, Jr. Memorial and Spencer Educational Foundation scholarships. Even more
impressive, the school’s RMI program has had 13 students earn the University Associate—
Certified Risk Manager designation. n

34 September 2010

education_sb1.indd 2 8/17/10 10:39 AM

 NOBODY WANTS TO TAKE THE FALL
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© 2010 Liberty Mutual Group.

When a patron claimed to take a bad fall outside the entrance of a major retail establishment,
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 Safeguarding the Ivory Tower
U
niversities have incredibly
complex risk profiles. Where
else might you have teen-
agers and octogenarians
intermingling alongside football stadi-
ums housing tens of thousands of fans,
science labs containing combustible
chemicals and fraternities hosting ine-
briated coeds?
To handle all this, risk managers at
higher learning institutions must do
much of the same work of their cor-
porate counterparts. “It’s very similar
to a multi-national corporation,” said
Michael Liebowitz, director of risk man-
agement and insurance for New York
University. “We have all the same expo-
sures. We have a workforce in the tens
of thousands. We have a student body in
the tens of thousands.”
But much like their peers in the public
sector, university risk managers are also
tasked with safeguarding what is essen-
tially a small city. “It is an operation that
doesn’t sleep,” said Liebowitz. “It is like
a city. It’s 24/7/365.”
And since it is NYU, that community
is far from small. “My ‘little’ city spans
the world,” said Liebowitz, noting NYU’s
global reach from Buenos Aires to a
brand new campus in Abu Dhabi. “We’re
on every continent except Australia.”
Making matters worse is how many
exposures major universities face.
“You name it, they probably have it,”
said Frank Altiere, president of PMA
Management Corp., one of the PMA
Companies, a Pennsylvania-based pro-
vider of risk management services to
more than 200 colleges and universities.
Fortunately, however, higher educa-
tion institutions also tend to be culturally
attuned to the necessity of risk manage-
ment. The need to protect students is
easy for anyone to grasp, and that can
help translate across all operations. “For
the president of a university, as soon as
he attends a football game with 50,000
people, it’s easy to say ‘what if?’” said
Altiere. “There’s a lot of what ifs. They
don’t want to be in the news.”
Gary Langsdale, university risk offi-
cer for Pennsylvania State University, a
PMA client well versed in the risks of an
institution where college football reigns,
feels the same way. “We love being on
the front page of the sports section,”
said Langsdale. “We don’t love being on
the front page of the news section.”
Of course, even with the best risk
36 September 2010
education_sb2.indd 2
management plans, things can still go
wrong. The key is being able to show
that there was no negligence on the
part of the school. “No matter what
happens,” said Altiere, “you have to
be comfortable standing in front of the
press saying that you did all you could
have done.”
One thing that helps Langsdale is the
fact that the university is an iconic state
institution. For Pennsylvanians, working
at Penn State is unlike working for any
old company. “We have a really small
risk management staff,” said Langsdale.
“But we have 20,000 staff members
who want to do what’s right.”
They do what’s right not out of man-
date, but because they are compelled
to by the admiration they have for the
155-year-old name on their paycheck.
“There is tremendous pride,” said
Langsdale. “In other places, there is a
pride for the products they create or
for the work of the department. This is
different. Everyone realizes that [Penn
State’s] reputation rises and falls with
how we are perceived.”
And when everyone is working to
ensure that their individual shop stays
clean, the universitywide image is
safer. “Reputation is a result of other
risks being managed well or not,” said
Langsdale.
The greatest—and highest profile—risk
is the students. Protecting buildings is
one thing, but the lives of teenagers
cannot be quantified. Keeping students
safe would be a lot easier, however, if
fewer treated their college experience
like Animal House. “Penn State used to
be the number-one party school,” said
Langsdale. “Now we’re down to number
three.” Some students may disagree,
but for Langsdale, that is improvement.
While student safety may be the great-
est risk, it is actually not the most diffi-
cult to manage. “When I came to higher
education, I thought it would be all about
the risks related to the students,” said
Langsdale, who has been at Penn State
for seven years and in risk management
for more than three decades.
But that has not been the case.
“The thing that worries me the most
is what we know we don’t know,” said
Langsdale. “These are the things. It’s the
person that is running a program that I
don’t know they’re unqualified to run.”
Penn State has a research nuclear
reactor, for example. Langsdale defi-
by Jared Wade
nitely did not anticipate that when he
entered the world of university risk man-
agement. The school also has a sociol-
ogy lab in Center City Philadelphia and
conducts nanotechnology research, the
risks of which may be very real but are
still not widely understood. “We have
people all across the state thinking up
new ideas,” he said. “Ninety-nine per-
cent of them are great and may benefit
humanity. But that 1% may have great
drawbacks.”
Uncertainty can be similarly troubling
for Liebowitz, who in addition to pro-
tecting students in the City That Never
Sleeps has to keep track of both young
adults and staffers all across the world—
no matter how inaccessible they may
be. “When there was an earthquake in
Haiti, I had to know where everyone who
might be there was,” said Liebowitz. “I
have to do that every time something
catastrophic happens.”
“We love being on the
front page of the sports
section. We don’t love
being on the front page
of the news section.”
– Gary Langsdale,
Penn State University
But according to Altiere, even uncer-
tainty cannot overwhelm the university
risk managers of today. Those that PMA
works with stand out for their ability to
understand all the diverse exposures
they face. “Of all the industries that have
gone through this recession, universities
have been among those that have done
the best,” said Altiere. “Kids continue to
enroll, so they could become compla-
cent. But they haven’t. The people I talk
to really want to continue to improve
their institutions...[They] ask ‘what can
we do to make our schools better?’”
Fitting that this attitude is so aligned
with the very concept of education. The
foundation of higher learning is parents
wanting their children to live a better
life than they had. This constant search
for personal improvement drives higher
learning. And, according to Altiere, that
same mentality is now driving university
risk management. n
8/17/10 11:02 AM
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 Brokers may not be legally required to give the best advice

A Matter
of Trust

A
lthough insurance agents have a
duty to act with reasonable care
towards their clients, they have
no obligation to advise clients in regard to
policy terms and conditions. Nor are they
obligated to ensure that their clients have
the most appropriate coverage. In fact,
there are several federal U.S. court cases
proving the importance of ensuring that
your insurance broker is actually acting as
your fiduciary.

by Marcus Wagner

38 September 2010

broker trust.indd 2 8/17/10 10:42 AM

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without sharing the benefits
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 A Matter of Trust

In 2008, a U.S. federal court deter-
mined that a company’s agent did not
have a duty to advise its client on the
most appropriate insurance coverage.
The judge in Sewall v. Great Northern
Insurance ruled that the broker,
Professional Lines Insurance Brokerage
Inc., had no fiduciary duty to its client
because the broker was, in reality, the
agent of the insurer. No client/broker
relationship existed beyond those of an
“ordinary, reasonable prudential agent.”
Another judge agreed. Insurance
agents do not have any duty to iden-
tify their clients’ needs, tell them when
they are underinsured or inform them
of additional coverage that may be avail-
able from different insurers, according to
a 1998 ruling in Cameron School Board
v. State Farm Fire and Casualty Co.
Given this, every risk manager should
question his or her broker relationship.
If a trust does not exist, you may be pay-
ing more for coverage and receiving less.
While many businesses are now more
aware of the need for transparency, dis-
closure and the conflicts of interest that
exist in the commercial insurance mar-
ket, they still misunderstand the need
to establish a fiduciary duty from their
insurance advisor. Most companies feel
comfortable with their current insur-
ance arrangements because they have
a good relationship with their broker
and have received prompt service in the
past. Unfortunately, most companies
discover that they were inadequately
insured only after it is too late—when a
major, uninsured event occurs.
Many insurance buyers also under-
estimate the power of fees in their bro-
ker relationship. “There should be total
clarity about whether the intermediary
is acting on behalf of the buyer or the
insurer and that it is no longer accept-
able for brokers to work for both parties
during the same transaction,” accord-
ing to the London-based Association
of Insurance and Risk Managers
(AIRMIC).
But in most countries—especially
the United States, Australia and New
Zealand—brokers continue to believe
that it is acceptable to work for the
insurer and client. Some insurers claim
they have difficulty understanding
the potential for conflict of interest.
Skeptics often claim that this inability
to understand is blurred by money.
Brokers typically receive a 15% to
20% commission for their services. In
Europe, some brokers also want insurers
to pay an additional 2.5% commission,
which will eventually be passed on to
clients. In addition, brokers sometimes
charge their clients a fee. In some coun-
tries, including the United States and
New Zealand, these fees can be camou-
flaged into the premium so the client is
not aware what is being charged above
the actual premium. In one example of
broker exploitation, this add-on fee was
$1.4 million on top of a $2.6 million
actual premium.
Dirk Verbeek, UK chairman and
CEO of Aon Risk Services International,
said the 2.5% additional commission is
justified for the services a broker pro-
vides in a changing marketplace heav-
ily dependent on expensive technology.
Critics of the 2.5% commission, dis-
agree, claiming it is an effort for brokers
to buy time to sort out business models
that were previously dependent on con-
tingent commissions at the expense of
clients and carriers.
The Risk and Insurance Management
Society (RIMS), a nonprofit advocacy
group for risk managers and publisher
of this magazine, once again spoke out
against contingents in July. “RIMS
reaffirms its position that contingent
fees for insurance producers should be
prohibited, and that in the absence of
prohibition, all compensation arrange-
ments should be fully disclosed to the
client,” stated RIMS. This announce-
ment came in response to Aon’s
announcement that it has “decided to
accept various forms of compensation
available, which may include supple-
mental and/or contingent commis-
sions.”
While the highly contentious issue of
contingent commissions has resurfaced
of late, the most important thing for
insurance buyers to understand is that
all commissions paid to brokers comes
out of the insurer’s profits. If the insurer
is not prepared to absorb that cost, it is
passed along to the client in the form of
higher premiums. n
Marcus Wagner, CPA, is a partner and
the advisory practice leader of Calvetti,
Ferguson & Wagner, a Houston-based
CPA firm.

Is Your Agent Your Fiduciary?

A fiduciary is someone who has undertaken to act for and
on behalf of another in a particular matter in circumstances
which give rise to a relationship of trust and confidence. And
the United Kingdom’s Financial Services Authority (FSA) has
identified five guidelines that will help all business insurance
customers improve their relationship with their brokers. The FSA
believes that if these guidelines are met, the insurance buying
process will be sufficiently transparent for buyers to access the
information they need and make informed decisions. And while
this, in and of itself, will not be enough to establish the special
relationship needed for your broker to be a true fiduciary, it is
a good start.
1. Customers should have clear and comparable information
about the commissions that intermediaries receive.
2. Customers should have clear and comparable information
about the services intermediaries are providing.
3. Customers should have clear information about the capac-
ity in which an intermediary is acting.
4. Customers should be alerted to their right to request com-
mission information.
5. Customers should be made aware where there is a chain
of intermediaries.

40 September 2010

broker trust.indd 3 8/17/10 10:42 AM

LEARNRISK
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Resources | Networking | Opportunities

RIMS educational workshops help you solve today’s challenges

and anticipate those of tomorrow. Through case studies, group
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Contractual Risk Transfer*
September 27-28 | Houston
Developing a Risk Management
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September 30-October 1 | Edmonton
Enterprise-wide Risk Management:
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October 4-6 | Atlanta
Developing and Implementing a
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October 4-5 | New York October 27-29 | Kansas City
Financial Aspects of Insurance
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October 6-7 | New York
Enterprise-wide Risk Management:
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October 6-8 | Chicago
Fundamentals of Insurance
October 12-13 | Denver
Techniques of Risk Management
October 14-15 | Denver
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October 14-15 | Bermuda
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October 18-19 | San Jose
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October 21-22 | Vancouver
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October 28-29 | New York
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November 1-2 | Toronto
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November 3-5 | Dallas
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November 4-5 | Charlotte
2010 RIMS Enterprise Risk
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November 4-5 | San Francisco
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November 15-16 | New York
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November 17-19 | Seattle
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November 18-19 | Nashville
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November 18-19 | Orlando
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December 6-7 | New York
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December 9-10 | New York

Register today! go.RIMS.org/SEPT

For details on the RIMS Fellow (RF) designation, visit www.RIMS.org/AboutRF.

KNOW RISK? KNOW RIMS.

 Shelf Life
T
ruth be told, I’m not much of a
Grateful Dead fan. Sure, like a
lot of people, I listened to them
in college, but eventually my
interests turned to the louder,
faster end of the music spectrum when I dis-
covered that I could listen to an entire punk
rock album in the time it took the Grateful
Dead to get through one of their seemingly
endless jams. But despite the fact that their
music doesn’t really appeal to me anymore,
I do respect the band’s ability to inspire
their devoted fan base of Deadheads and to
remain successful for decades without ever
really having a chart-busting hit.
According to Marketing Lessons from the
Grateful Dead, however, there is more to the
story. Believe it or not, underneath all the
Marketing tie-dye, patchouli and good vibes, man, lie
some valuable lessons for modern business.
Lessons from As authors David Meerman Scott and Brian
the Grateful Halligan point out, the Dead were success-
ful because their unconventional ways were
Dead actually a precursor to the social marketing
strategies that so many companies have
What Every Business adopted today.
Can Learn from the Most
Iconic Band in History
The Dead were successful because their unconventional
by David Meerman Scott
and Brian Halligan ways were actually a precursor to the social marketing
strategies that so many companies have adopted today.
Take, for example, the fact that the band
allowed fans to record and share their con-
certs. While every other band outlawed the
practice for fear that people would stop buy-
ing concert tickets, the Grateful Dead actually
set up special “taper sections” at each show
so that fans could record the music for free.
The result? The Dead gained more and more
fans, sold out stadiums across the world, and
became one of the most successful touring
bands in music history. So much for diluting
their ticket revenue. It is a lesson that any
company concerned with giving away their
products online would be wise to consider.
Or what about other unorthodox ways the
Grateful Dead developed and nurtured their
fan base? In the early 1970s, they created
42 September 2010
books.indd 1
a mailing list from a direct appeal on an
album jacket when most bands turned up
their noses at such direct communication
with their audience. They bypassed ticketing
services like Ticketmaster and established
their own ticketing office to give their fans
access to the best seats. And they let their
fans organically create a community where
eccentricity was embraced. In each case,
by going against accepted practices, the
Grateful Dead continuously built a loyal fol-
lowing that sang the praises of their “prod-
uct.” If only our own social media efforts
were so successful.
The Grateful Dead’s story can also teach
businesses the value of embracing technolo-
gy. In the mid-1970s, the band invented new
sound equipment when the need presented
itself and made their concerts into one-of-a-
kind spectacles.
This innovation continued in 2009, when
the surviving members of the band, under
their newest musical incarnation, debuted a
real-time iPhone app that included stream-
ing audio of their performances. Contrast
this with companies that still block valuable
networking tools like Facebook or LinkedIn,
thereby putting their employees at a disad-
vantage by not allowing them to capitalize
on the latest in technology. If a bunch of
musicians can see the value in the latest
gadgets, businesses certainly should be able
to as well.
At first glance, Marketing Lessons from
the Grateful Dead seems to be a bit of
a stretch—an excuse for a couple of self-
avowed, life-long Deadheads to write about
their favorite band. But the book, like the
band, defies expectations and proves to
be accessible, entertaining and thought-
provoking.
Not bad for a bunch of dirty hippies.
–Morgan O’Rourke
8/17/10 10:43 AM

Power
Why Some People Have It
and Others Don’t
by Jeffrey Pfeffer
D
id you know that an outstanding job
performance may not guarantee a
promotion—but could actually hurt an
employee’s career? Hard to believe, but that is
what Jeffrey Pfeffer is throwing out there in his
most recent book, Power: Why Some People
Have It and Others Don’t. He gives the fictional
example of a young IT professional who was so
good at his job, his manager would not let him
advance towards other areas of the company
because he feared losing his star employee.
Pfeffer’s point here is that doing great does
not guarantee a promotion or raise. For that,
he asserts, you “need to be noticed, influ-
ence the dimensions used to measure your
accomplishments, and, mostly, make sure you
are effective at managing those in power,
which requires the ability to enhance the ego
of those above you.” More specifically, Pfeffer
lists seven personal qualities that he feels
builds power: ambition, energy, focus, self-
knowledge, confidence, empathy with others
and capacity to tolerate conflict.
Though some may associate power with
greed and corruption, Pfeffer presents the idea
of power (and wanting it) in a positive light,
telling the reader where to start, how to stand
out and that, most importantly, that it is OK
to break some rules. Using examples such as
Soichiro Honda (founder of the Japanese auto-
mobile company) and Henry Kissinger, Pfeffer
claims that following the “straight and narrow”
does not always pay off. Bidding homage to
Malcolm Gladwell, he states, “the rules tend
to favor—big surprise—the people who make
the rules, who tend to be the people who are
already winning and in power.”
But earning power does not come without
conflict. To sidestep problems, Pfeffer offers
advice such as “don’t take things personally”
and “be persistent.” Sure, these sound obvi-
ous, but Pfeffer ties in case studies for each
bit of advice, illustrating approaches that may
have otherwise gone unnoticed. Power shows
how political skill, not just work performance
or talent, is a driving force behind succeeding
in any field.
–Emily Holbrook

W
hen it comes to management,
there is no one right way to get
the job done. Many have tried to
codify the exact tenets an executive should fol-
low to become a great manager, but even the
best lists cannot ensure success. Ultimately, it
is more art than science. The soft skills matter,
and knowing how to deal with individuals in
unique situations is not something that can be
taught in a book. Or a classroom.
In Bury My Heart at Conference Room B,
however, Stan Slap attempts to explore per-
haps the one thing that every great manager
needs: commitment. “Getting a big paycheck,
working 12-hour days and being glued to a
Blackberry at night and on the weekends are
not signs of emotional commitment,” he writes.
“What really drives employees is a sense that
their personal values are being met in both
their company and the environment at work.”
The paradox in this relationship is that the
manager, traditionally, must give precedence
to the rules and procedures of the company
over the needs and desires of the individual
she supervises. The manager must be the
“boss,” enforcing hierarchal mandates and, in
the process, deflating the ambition and com-
mitment of her employees. In turn, this also
deflates the manager and leads to a corporate
culture where every stakeholder is being forced
to either adhere to or enforce protocols that
are incongruent with their personal values.
Slap suggests that it does not have to be
that way. He shows how companies can tear
down the wall between managers and subordi-
nates and create a working environment where
everyone is engaged.
It seems radical. And it just might be. But it
has worked in some places.
So while it may not be realistic for every
company, it is at least worth exploring. Even Bury My Heart
without a total cultural overhaul, at least some at Conference
of these ideas can translate to a business Room B
where iron-fisted management will never go The Unbeatable Impact of
out of style. In a way then, I guess, the tenets Truly Committed Managers
of Bury My Hear at Conference Room B make it by Stan Slap
just like any other management tome.
–Jared Wade

Risk Management 43

books.indd 2 8/17/10 10:43 AM

 Findings

Crude ERM Implementation

To recognize the importance of risk man-
agement in the energy sector, one needs
to look no further than the Gulf of Mexico.
Safeguards at BP were not as high of a
priority as they should have been, and the
result is that one of the world’s largest,
most profitable companies is hemorrhag-
ing money to the point that asset sell-offs
have begun and takeover talks have
been broached.
A recent study by Deloitte confirms this
fact. The implementation of enterprise
risk management has become common
throughout the energy and resources
industry, but actually monitoring and
reporting on risks in any sort of system-
atic, worthwhile way is still a large chal-
lenge for most companies, says the “Risk
Intelligence in the Energy & Resources
Industry” survey. In fact, only 48% of
companies reported that they have a
“fully operational” ERM program—more
than three-fourths of which have existed
for more than one year. More troubling is
the fact that it takes industry companies
between three and seven years to “bring
ERM to an operational level,” accord-
ing to the study, meaning that the 52%
of companies without proper programs
have a long way to go to catch up.
The many risks facing energy com-
panies also further dampen the current
state of risk management in the sec-
tor. Resource scarcity, political instability,
infrastructure obsolescence, potentially Actually monitoring and reporting on risks in
adverse weather events, greenhouse gas
any sort of systematic, worthwhile way is still a
emissions and the uncertain regulatory
environment all present unique risks. large challenge for most energy companies.
New technology related to renewable
energy production—as well as a poten- tors. “Regulatory compliance has been define a broader scope for ERM that
tial prolonged economic downturn in the the main driver for a certain number of includes the management of risks for
West—also present challenges. years due to increasingly complex multi- strategic, operational, financial and com-
The survey does note that the ris- jurisdictional compliance requirements,” pliance objectives.”
ing priority of risk management is cer- states the report. “European Corporate Ultimately, improving risk manage-
tainly related to companies wanting to Governance regulations have incorporat- ment is beneficial no matter the inspira-
improve their operational performance, ed risk management for a decade, some tion. But it is much more inspiring—and
but another important point also states for even longer (the UK since 1992, the believable—if the motivation comes from
that much of this cultural change is also Netherlands since 1997, Germany since the company itself.
driven by external factors—namely regula- 2000). The European CG regulations also –JW

44 September 2010

findings.indd 1 8/17/10 10:44 AM

 VoIP Phobia
Voice over internet protocol (VoIP) has
become a popular way for a tech-savvy
society to conduct calls over the inter-
net. By using this method, rather than
the public telephone network, compa-
nies and individuals can benefit from
reduced communication and infrastruc-
ture costs, the ability to transmit more
than one call over a single broadband
connection and location independence.
The security of VoIP is in question, how-
ever. A recent report issued by Emerson
Development states that “the unprotect-
ed internet-based telephone services
are expected to produce major insur-
ance losses.” The report highlights how
the technology’s recent rise in popularity
has caused a shift from the reliable and
secure traditional telephone network to
an “internet environment of extreme
risk.” Just as the information of users is
at risk with each boot up of a computer,
users of VoIP will be at risk from hostile
acts such as spying, hacking, intrusion,
identity and intellectual property theft
and interruption of service. At risk are a
growing number of insured sectors that
rely on VoIP, including the government,
military, banking industry and hospitals.
“Cyber insurance products will be cre-
ated for users of VoIP as well as for
VoIP providers and vendors,” said Glenn
Tippy, report co-author. “The effect on
our economy will be profound.”
–EH
findings.indd 2
Rocky Relationship
The relationship between corporate risk
managers and their insurance brokers
is, historically, one of trust, dependence
and confidence. But that is not the
case currently, according to the “2010
Large Corporate Insurance Study” con-
ducted by Greenwich Associates. The
survey finds there is a growing discon-
nect between corporate risk managers
and their insurance brokers—a situation
with alarming potential consequences.
The risk managers surveyed expressed
low satisfaction with the service they
are receiving from virtually all U.S. insur-
ance providers. Only two firms out of
the 10 largest U.S. corporate insurance
brokers received an “excellent” rating
from more than 30% of their corpo-
rate clients. Those two firms (Beecher
Carlson Insurance and BB&T) are rela-
tively small, spelling bad news for the
major insurance brokers. “The fact that
companies see little distinction between
major brokers and carriers will come as
unwelcome news to insurance provid-
ers, many of which make large invest-
ments of time, effort and money in trying
to develop strong brands,” said Brett
McNeice, client broker with Greenwich
Associates. It seems that recent declines
in revenue, stemming from a stalwart
economy, have forced brokers to put
their focus on their bottom lines instead
of their crucial client relationships.
–EH
Betting on Cat Bonds
Despite continued reports of an active
Atlantic hurricane season, seven of the
eight catastrophe bond transactions
completed in the second quarter of
2010 included exposure to U.S. hurri-
cane losses, according to Guy Carpenter
& Company and GC Securities. The data
does not point to a lack of faith in
hurricane prediction, but rather to the
increased interest in catastrophe bonds
as a method of risk transfer. With eight
catastrophe bond transactions (the one
non-wind storm-based bond was for
exposure to New Madrid earthquake risk
in the Midwest), totaling more than $2
billion in risk capital, the second quarter
of 2010 was the second-most active
quarter on record. Despite the surge in
activity, however, the report revealed
that total risk capital in the second quar-
ter fell to $11.8 billion, which is a drop
of slightly less than 1% from the first
quarter of 2010 and 5.5% from the end
of 2009. Some analysts have theorized
that the rise in transactions and the
corresponding drop in capital invested
indicate that the cat bond market lacks
enough options for the diversification
of risk. The report anticipates a drop
in appetite for U.S. hurricane exposure
but indicates that investors still have
a strong interest in U.S. earthquake,
European wind, and Japanese wind and
earthquake perils.
–MO’R
Risk Management 45
8/17/10 10:44 AM
 Hindsight

80
Risks That Worry the Most Execs

“ I can’t sing

”
forever.
68.8%

70

60
– Wyclef Jean, a Haitian musician,
after being asked about his campaign
to become president of Haiti.
50.2%

50
Source: Time

40
35.8%

34.8%

8 Steps to Take
30 After a Disaster
1. Monitor conditions for
21.8%

20.8%

further catastrophe
20
16.0%

2. Communicate emergency
plan to employees
10.8%

9.4%

8.4%

8.2%

10
3. Implement information,
4.8%
5.8%
6.0%

5.2%

4.8%
5.4%

communications and IT
0
plans to avoid disruption
Liquidity/Credit Crunch
Global Recession
Regulation/Policy Risk

Supply Chain Quality

Financial Market Volatility
Commodity Price Volatility

Natural Catastrophe/Extreme Weather

Major Country/Economy Collapse

Accelerating Pace of Tech Change

Data/Intellectual Property Theft

Supply Chain Fragility

Increased Protectionism

Terrorism/Acts of War

Energy/Resource Scarcity
Pandemics/Infectious Disease
Cost Inflation

Expropriation/Political Risk

4. Contact your insurance

carrier/broker
5. Separate and salvage equipment
and stock that is damaged
6. Document and photograph
damaged property
7. Contact vendors and clients
Source: Oliver Wyman/Financial Times’ “Global Emerging Risks Survey”
8. Implement a media relations
plan, if necessary

Source: Allianz

46 September 2010

hindsight_sept.indd 1 8/17/10 10:45 AM

 The State of Men

58%
of men think moral standards in business are in decline. 13% say they have betrayed their own
sense of ethics for business but regret it while 9% have followed suit—and would do it again.

27%
of men say that they have been sexually harassed in the workplace and while 6% admit to have
been “bothered by it,” only 1% actually “did something about it.”

38%
of men think that, of all countries, the United States poses the biggest threat to the United States.
China (28%), North Korea (16%), Iran (13%) and Pakistan (5%) round out the Top 5.

43%
of men, when asked “how scared are you of terrorists?” say that “I never was,” while 21% say
“somewhat, but not as much as I used to be,” and 7% say “not at all, not anymore.” Only 8% say
“very, they’re still out there.”
Source: AskMen.com’s “Great Male Survey: 2010 Edition”

Fraudster Sues Facebook for $21 Billion

June 20, 2010 – Date that Paul Ceglia sued Facebook and its owner Mark Zuckerberg

$1,000 – Amount Ceglia alleges that he invested in “The Face Book” in 2003, after which
Zuckerberg, then 18 years old, signed a contract giving Ceglia a 50% stake in the project, plus
another 1% of interest for each day after January 1, 2004, that the site launch was delayed

84% – Stake in Facebook that Ceglia alleges that he is now entitled to. Based on the current value of
the company, that is an estimated $21 billion. “If at some point in the future I start running
Facebook,” said Ceglia, “I guess I’m going to have to hire [Zuckerberg] to keep running the company.”

more than 24 – Number of complaints from customers alleging that they had never
received the wood pellets, which provide eco-friendly heating, they purchased from Ceglia’s
company prior to him being arrested for fraud by state police officers on October 30, 2009

Source: Bloomberg BusinessWeek

Risk Management 47

hindsight_sept.indd 2 8/23/10 3:00 PM

 Last Word
The End of the Internet
It sounds unfathomable but, believe it or not, the inter-
net is almost out of space. According to experts, in less
than a year’s time, we will have run out of available
IP (internet protocol) addresses­—the codes that allow
devices such as computers, smartphones and even the
latest refrigerators to access the internet. Once that hap-
pens, the internet will be completely full, like a night-
club that has reached its capacity. And it won’t matter if
you know the bouncer—you’re not getting in.
This is because the current addressing system, known
as IPv4 (internet protocol version 4), is a 32-bit data
system that can “only” accommodate some four bil-
lion unique addresses. Back 30 years ago, when IPv4
was implemented, four billion addresses seemed like
plenty. But the proliferation of internet-enabled tech-
nology across the globe has exhausted those addresses
at a rate no one anticipated.
As of early August, there
were less than 230 mil-
lion addresses left. And
they’re going fast—every
day or two another mil-
lion are used up. (There
are actually multiple web-
sites that count down this
sort of thing.)
But there is a solution.
Much like how phone com-
panies add new area codes
when they run out of phone
numbers, the internet is
going to get some new numbers as well. Actually, it will
be moving to an entirely new system—internet protocol
version 6, or IPv6, as it is more commonly known. (For
those of you wondering what happened to version 5, it
was designed for another application and has since been
abandoned.)
IPv6 is a 128-bit system. This level of complexity
will not only improve the performance and security of
internet applications, it will allow for more than 340
undecillion IP addresses—a number that sounds imagi-
nary, but is actually 340 followed by 36 zeros. To put it
another way, that is more than 50 billion billion billion
addresses for every person on earth. Supposedly, that’s
enough to give an IP address to every grain of sand on
the planet. In short, this new system should probably
cover our needs for, well, forever.
In the meantime though, the transition will not be
48 September 2010
last word.indd 1
by Morgan O’Rourke
simple. It is not like the internet fairies can just flip a
switch, move everything to IPv6 and let everyone go on
their merry way. Websites need to specifically config-
ured to the new system. While many of the major sites
like Google, YouTube and Facebook already have IPv6
versions, the vast majority do not. And although most
new gadgets are made to be IPv6 compatible, many
older systems (and we are talking only five years or
older) are not. This will not be a problem initially since
the two systems will run side-by-side for a while, but
since they are not compatible, there will come a time
when your web applications will be obsolete and your
trusty, old computer will not be able to communicate
with newer technology or access the latest websites.
Obviously, you need an upgrade plan for your net-
worked technology if you don’t
have one already. But this is a bit
more complicated than it seems
because there is no deadline
for the switch. Unlike Y2K,
where the calendar served as
an hourglass, the IPv6 transi-
tion will happen more gradu-
ally, since it is an issue with
little perceived urgency, par-
ticularly in North America,
which lags behind Europe,
Asia and Australia in IPv6
penetration. In addition, ser-
vice providers have also started
implementing an alternative called network address trans-
lation (NAT), which allows for the allocation of a single
IP address to multiple users depending on who is active at
the time. According to some experts, this makes the need
for IPv6 adoption less immediate.
But the fact remains that IP addresses are running
out, and a new system is inevitable. But what this issue
really shows is that, once again, just like with Y2K, we
seem to have a blind spot when it comes to new tech-
nology. By constantly underestimating the impact of
the latest gadgets, we end up costing ourselves so much
more time and money than we would have had we just
planned a little better in the first place. Technology
moves fast and we need to become more accustomed to
moving with it and anticipating potential problems, no
matter how far down the road they might seem. Sure,
you can’t predict the future, but that doesn’t mean you
should never carry an umbrella. n
8/17/10 10:46 AM
RISK_RK_Sep7Issue_Ad_FP4C.indd 1 8/6/10 4:58 PM
 Ma

Y
ke t
he m

O
JOU UR
ost
of

RNE
Y. Chartis will be
at your side.
Our financial strength and decades
of experience mean we can go farther

for our clients, to make sure that what’s

most important to them is truly secure.

Learn more at www.chartisinsurance.com

All products are written by insurance company subsidiaries or affiliates of Chartis Inc.
Coverage may not be available in all jurisdictions and is subject to actual policy language.
For additional information, please visit our website at www.chartisinsurance.com.

chartis.indd 1 8/3/10 2:56 PM