Treasury & Risk's 7th Annual Alexander Hamilton Best Practices Summit — October 1 and 2, 2002
2002 — Insurance Winners: Gold—Whirlpool; Silver—Dell Computer; Bronze—AT&T Broadband
MAKING LIABILITIES PERFECTLY CLEAR
Whirlpool nabs the gold
GOLD INSURANCE WINNER—In insurance these days, the challenge for financial executives is not just getting coverage, but getting affordable coverage. The solution the risk managers at Whirlpool Corp. came up with: Provide insurers with information so clear that it eliminates uncertainty and improves the price insurers are willing to offer. So when it came time to re-bid the company’s coverage in 2001, the team sat down and created “the perfect submission” for underwriters.
Without getting the data right and telling the correct story around the data, there was no way we were going to be able to bring our pricing [on insurance premiums] down, says Gary Kilburg, Whirlpool’s director of risk management. When insurers don’t understand, they price in uncertainty, he adds. That’s what this project was all about—how do you strip that [uncertainty] out of there.
Working with its broker, Marsh Inc., and one of its insurers, Munich American Risk Partners, Whirlpool set out to tie up loose ends, verify the accuracy of information and, in general, eliminate mystery. The company scoured the data on its loss history, checking for inconsistencies and making sure that data coming in from various units was classified and warehoused correctly. To make sure its businesses around the world provided the same type of information about their operations and risks, Whirlpool gave them exact definitions of what it was seeking when it asked them to provide data on, say, business continuity values or property values. Once the data was checked, Whirlpool took the information and analyzed it, using modeling and actuarial representation, to depict the scope of its risks for insurers.
It sounds simple, but Munich Re and other insurers tell us that while they get a lot of data, they don’t understand what they’re supposed to get from the statistical information, says Kilburg.
Whirlpool loaded its submission onto CD-ROMs to present to underwriters. Insurers appreciated getting the data in CD form, Kilburg says, noting that underwriters often receive emails with huge numbers of attachments. With a CD, you can click on one file, and it opens up into a very sophisticated presentation. You can click on any line and get a more detailed presentation. The CD also provided other information about Whirlpool, including a video.
Kilburg says the improved submission increased insurers’ interest in Whirlpool’s business. ?On the lead umbrella [program] alone, we brought in three new [insurers] that had not been in the Whirlpool program, and they were aggressive in their bids.
And the best result of all the hard work by Whirlpool risk managers to craft a clear submission for its underwriters: The company saved $1.1 million on its 2002 insurance premiums.
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SILVER INSURANCE WINNER—One consequence of the rapid spike in the size of the workforce at Dell during the 1990s was a higher-than-anticipated increase in worker disability claims and lost time on the job, which exceeded industry benchmarks. To deal with this unpleasant surprise, Dell set up a multi-disciplinary team to audit the company’s existing practices for dealing with disability claims and lost time, compare them with industry standards and then make recommendations for changes that might help lower Dell’s lost time and workers compensation numbers.
Their conclusion? The key to improving lost time statistics is “integrated intake,” says Ken Smith, Dell’s risk manager for business risk management and insurance. “It’s getting the thing reported and getting early intervention, [determining] the care an employee is going to get and what they need to return to work.”
After the recommendations were developed, the team put together an RFP for vendors to work with Dell in implementing them. Among its new set of providers are UNUM Provident and three affiliates, which provide telephone claim intake, nurse case management and database systems and reporting, and CNA and Gallagher Bassett, which were selected to handle Dell’s workers comp coverage.
In the first six months under the new system, Dell saw a 23% reduction in the average lost time for short-term disability cases and a 57% reduction in average lost time for workers compensation claims. Its costs for short-term disability claims fell 23% and workers comp claims costs fell 63%.
Smith says Dell hadn’t realized the extent to which employees’ absences were caused by medical reasons rather than workers’ comp claims. Ninety-five percent of the opportunity was on the [non-occupational] side, Smith says. That process didn’t have the rigor around it. People weren’t actively managed back to work.
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BRONZE INSURANCE WINNER—AT&T Broadband was not happy with the projections it was getting from brokers and consultants on its worker compensation casualty claims. First of all, most of them were using loss development factors for the telecommunications industry, which the cable company didn’t see as a good standard to gauge risks facing a player in its industry. Next, AT&T Broadband’s own complicated history of acquisitions and divestitures, not to mention the six different third-party administrators that handled the company’s claims in recent years, didn’t help developing good models.
The company decided that if it wanted accurate forecasts of its worker compensation casualty claims, it would have to do them itself. So in late 2001, AT&T Broadband—with the help of RiskLaboratories LLC, which already provided AT&T Broadband with a risk management information system called RiskFolio—set out to build a tool combining @Risk 4.05, a software application by Palisade, and RiskFolio’s cost-of-risk allocation module to produce better projections. The tool takes AT&T Broadband’s historical data on its worker compensation claims and its loss development factors, as well as other information, like the outlook for inflation, and projects the frequency and severity of the company’s claims for the coming year.
On a small scale, the new tool saves AT&T Broadband $30,000 to $40,000 in annual fees that would have been paid to outsiders attempting forecasts. More important, in its first six months of use, the tool contributed to a 15% reduction in claims losses. Rick McPherson, vice president of corporate services, says the modeling tool “really helps identify where the [claims] costs could be higher and therefore where you need to spend more attention on preventive measures and awareness campaigns.” The information should also help when it comes time to negotiate next year’s coverage with insurers, he says.
—As seen in the October 2002 issue of Treasury & Risk magazine