Top Ten Risk Management Lessons and Trends from 2009

This year has been a tumultuous year throughout our nation. I polled some of the nation’s top risk management gurus and asked them what newsworthy events and trends they felt impacted risk management this year. Then, I added a few of my own. Here are the top ten. 

1. Social networking in the office must be managed. In a nine-month period, Facebook added over 100 million users. In one study, 77 percent of frequent Facebook users log in at work. Sixty-two percent of Twitter users access Twitter only at work. Businesses can no longer afford to ignore this communication tidal wave. Kevin Quinley, a top insurance pundit, offers a few words of advice. “Recognize but manage the corporate risk and opportunities from emerging social media/networking. Harness them to advance the enterprise’s overarching business aims.”
2. Cyber risk will continue to be a hot topic. Companies are tightening internal security with more sophisticated intrusion detection, more secure authentication and stronger analytics for security, according to Baseline Magazine. Organizations better understand that cyber risk coverage is “nice to have” coverage. For many businesses, it is now a necessity. Cyber risk coverage is still an evolving field. It was designed only in the past decade to meet the demands of organizations’ growing web presences. Since it is so new, there is little actuarial data to base rates on and coverage can be limited. Still, many companies that have braved the new cyber world alone are now investigating and purchasing coverage.
3. Don’t underestimate the impact of Baby Boomer retirement. Just because the economy is still bumpy and companies are laying off in droves, knowledge gaps your company must fill have become more apparent. Organizational knowledge mapping and knowledge transfer are no longer a luxury, they are a necessity.
4. Regulatory restraint will heat up. Democratic administration has clearly signaled the “Department of Labor is back in business.” (See my previous column.) Organizations must be keenly aware of these policy changes, with the specter of increased OSHA enforcement and their potential impact on operations.
5. Government will increasingly privatize services traditionally provided by the government. Several states, including my home state of Arizona, are in severe fiscal distress. This can be an opportunity or a threat, depending on where your business stands in relation to this change.
6. Your largest competitor may no longer be your biggest threat. Beware the “empire of one,” a phrase coined by futurist Thomas Frey. These are small, one or two person businesses, heavily reliant on the internet, which have “far reaching influences,” according to Frey. He predicts that seven percent of the recent jobless will start their own companies. Many of those laid off have power networks and a strong entrepreneurial spirit. Watch for emerging threats that come from seemingly nowhere.
7. Workers' compensation insurance buyers need to be concerned about more than price. Recent insolvencies in New York with CRM Trust have left many business owners exposed to significant liability. As early as 2008 according to Insurance Journal, insurance officials in New York warned that about half of the 65 workers’ compensation self insured trusts in that state were underfunded. “The market cycle has been kept soft too long because of the economy,” one workers’ compensation manager said recently. “The overall market in California has been writing combined ratios over 100 percent for a couple of years. There will be more insolvency in 2010,” he warned. Workers compensation is a long-tail business. This means claims settle slowly. Your carrier better know what they are doing if they plan to survive long-tail liabilities. You want to know your carrier will be around to pay your claims.
8. Medical costs for both health insurance and workers’ compensation will continue to escalate. While injury frequency (how often employees are injured) across the nation is down slightly due to fewer employees on the payroll, severity (how much a claim costs) has increased. There are several factors at work to increase severity.1) There are few jobs available and employees may not be able to find comparable pre-injury employment. 2) Employees who fear layoffs may recover more slowly, instead opting for their workers’ compensation wage replacement over potential unemployment. 3) An aging workforce. Older workers are hurt less frequently, but when injured, generally take longer to heal. 4) Increased obesity as a national trend. 34 percent of the US population over age 20 is "obese" according to the CDC. It is now well documented that this condition drives medical costs for both group health and workers’ compensation.
9. Employment litigation will continue to heat up. As I speak with human resources officers, I find one common thread —employee relations are bad. Disgruntled employees who two years ago could have found work elsewhere must now stay put. They are not staying quietly, however. The EEOC reports an increase in employment complaints and plaintiff firms are reaching out for clients. Also expect an increase in short-term and long-term disability claims.
10. Don’t assume you won’t get caught. Two words — Tiger Woods. A tongue-in-cheek recommendation from a US risk manager: “Practice exposure segregation. If you have mistresses, make sure they live in different states!” Seriously, after Tiger’s activities came to light, a broker, DeWitt Stern, announced a new insurance product. This coverage could protect endorsement-hungry companies from their endorser’s lack of common sense. Watch for more news on this reputational risk product in early 2010.

2009 has been a field day for risk managers. I am sure that 2010 will be another challenging year.