Author Archives: Emily Holbrook

About Emily Holbrook

Emily Holbrook is a former editor of the Risk Management Monitor and Risk Management magazine. You can read more of her writing at EmilyHolbrook.com.
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Managing Risk at America’s Big Game

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As the Super Bowl gets under way Sunday in New Orleans, event organizers will be working feverishly behind the scenes, making certain that all aspects of the game go off without a hitch. From plans that focus on the potential for severe weather to controlling alcohol intake by fans to ensuring the halftime show goes on, organizers and insurers are working around the clock leading up to, during and immediately after the game. I contacted Chris Rogers, director of risk control at Aon Risk Solutions and Lori Shaw, sports and leisure practice leader for Aon Risk Solutions to get their take on the risks and how they are handled.

RM: New Orleans is known for its party atmosphere.

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How will event organizers protect employees, fans, vendors and facilities from crime and unruly visitors?

Chris Rogers: Event organizers will work closely with local law enforcement personnel and emergency response personnel to assess any risks to employees, fans, vendors or the facilities. A threat assessment will be completed and preparations made and put into place that serve to mitigate or eliminate those threats. The NFL and team owners have made a commitment to providing a safe and secure venue for everyone’s enjoyment.

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They have also worked closely with organizations, such as [Techniques for Effective Alcohol Management] T.E.A.M. Coalition, to promote the responsible use of alcohol and have provided VIP tickets for the winners of designated driver contests held throughout the season. Event organizers have received outlines and guidelines relating to security matters that are intended to be shared with their personnel and event attendees that provide additional support for those events during this time.

RM: What types of insurance needs to be in place to protect event organizers from myriad of possible risks?

Lori Shaw: Event organizers need to consider not only the traditional lines of insurance purchased by a business enterprise, such as general liability, property, workers compensation and auto, but also specialty coverages designed to protect event-specific activities, such as athletic participant legal liability, volunteer and participant accident, liquor liability, directors and officers, coverage for pyrotechnics, third-party property damage, terrorism (and threat of terrorism) and event cancellation, including adverse weather, communicable disease and non-appearance of essential performers/players/entertainers.

RM: How do event organizers navigate advertising and sponsorship exposures?  

Shaw: For large events, the advertising risk is usually carried by the broadcaster. The risk of broadcast interruption could be passed to the event organizer, and if that is the case, the event organizer would look to secure broadcast interruption insurance.

RM: What happens in the case of extreme weather, such as an off-season hurricane or rare Louisiana snowstorm?

Rogers: The NFL and other sporting organizations have developed plans over the years to address the additional and unique challenges posed by extreme weather. These plans have been developed in conjunction with public and private weather services to ensure that the best information is available to event organizers so that they can respond properly and in a timely manner. These plans are further augmented by the development of emergency contingency plans that address what will be done if the weather affects the game, either just prior to the beginning, or even during the game. If something occurs during the game, the stadium’s “shelter-in-place” plan would have to be activated.

RM: What if the half-time headlining act cannot go on? Are event organizers prepared with a backup plan?

Rogers: A backup plan will greatly depend upon when it becomes apparent that the headliner cannot go on. If it is a few days before the event, a substitute act could possibly be arranged. If the change is something that is sudden and occurs just before halftime, it will mostly depend upon who is involved and what might be an alternative. Perhaps the rest of the pageantry can be expanded or they could cut to the broadcaster’s booth for additional commentary on the game.

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Pirate Attacks Decrease Drastically

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In the past several years, pirate attacks on vessels in the northern Indian Ocean made headlines as hostages and the ships on which they worked were held for ransom in record numbers. It proved to be an attractive and lucrative career for poor residents of Somalia and surrounding areas — many of whom have little prospects for traditional money-making opportunities.

But pirates haven’t been so successful in recent months. In fact, the U.S. Navy reports that there was an 80% decline in overall attempted attacks in 2012 compared with 2011. In terms of vessels hijacked, the number decreased by almost 75%. The reason for this drastic decrease is simple: self-defense.

As African Business reports:

“The ultimate security measure a commercial ship can adopt is the use of privately contracted armed security teams,” says Andrew Shapiro, Assistant Secretary in the Bureau of Political-Military Affairs of the US State Department. “These teams are often made up of former members of various armed forces, who guard merchant ships during transits through high risk waters,” he told a recent briefing in Washington. “The use of armed private sector security teams has been a potential game changer in combating piracy. To date, not a single ship with armed security personnel aboard has been successfully pirated.”

Other protective measures adopted by merchant shipping includes passing through high risk areas at full speed and erecting physical barriers, such as razor wire, to make it more difficult for pirates to come aboard.

So, even though the threat remains, it seems that companies are taking every effort to prevent attacks on vessels and staff. As Secretary of State Hillary Clinton noted in a 2009 speech, “We may be dealing with a 17th century crime, but we need to bring 21st century solutions to bear.” It seems those 21st century solutions are working.

 

 

JP Morgan’s Poor Risk Management

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JP Morgan’s $6.2 billion “London Whale” trading loss was a much-publicized event in 2012. In the aftermath, some called for the resignation of CEO Jamie Dimon, while others pointed their finger at lax risk management standards within the bank. Yesterday, we finally found out what JP Morgan’s opinion on the matter is in a lengthy report. Their conclusion: inadequate risk management financial oversight within the chief investment office (CIO) and JP Morgan as a whole.

To be more specific, on page 97 the report states, “CIO Risk Management lacked the personnel and structure necessary to properly risk-manage the Synthetic Credit Portfolio, and as a result, it failed to serve as a meaningful check on the activities of the CIO management and traders.

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This occurred through failures of risk managers (and others) both within and outside of CIO.”

The head of the CIO, Peter Weiland, resigned quietly in October while others involved either left the bank or their positions were rearranged over the past several months. But Jamie Diamond escaped partly unscathed (he did have to testify before Congress and recently had his pay cut to a tiny $11.5 million from $23 million). Interestingly enough, so did JP Morgan’s chief risk officer and the CIO chief risk officer, which is confusing considering the statement on page 97.

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Two top CFOs were held responsible for the costly blunder, however.

As CFO reported yesterday:

The report, released Wednesday, said JPMorgan’s former top CFO, Douglas Braunstein, “bears responsibility” for weaknesses in financial controls related to the investment portfolio and could have asked more questions about changes in its value and its increasing exposure to adverse movements in the financial markets.

The other former finance chief criticized in the report was John Wilmot, who headed the CIO’s finance function.

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Wilmot and his team failed to set up robust reporting controls, the report said, “including sufficient circulation of daily trading activity reports, [which] made early detection of problems less likely.”

While the task force noted that the “primary control failures were risk management failures,” the finance organizations headed by Braunstein and Wilmot “could have done more.” In the case of the CIO’s finance team, the task force stated that in part it took “too narrow [a] view of [its] responsibilities,” believing the issues related to the CIO’s credit portfolio “were for the risk organization and not finance to flag or address.”

So while the JP Morgan task force noted that there were errors made on both the risk management side and the finance side, the bank ultimately held the finance department responsible. Braunstein stepped down while Wilmot resigned and will be leaving the bank this year.

The roles of CRO and CFO are often intertwined and overlapping. Do highly risky decisions involving potentially large losses or gains require the oversight of the finance or risk management department, or both? It likely remains a case-by-case basis and this JP Morgan fumble will likely remain the industry’s glaring example of what not to do.

RIMS President John Phelps Outlines the Society’s Future

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January marks the changing of the guard for the acting President of the Risk and Insurance Management Society (RIMS).

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This morning the RIMS office in New York welcomed John Phelps, the 2013 RIMS President.

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Phelps is currently the director of business risk solutions for Blue Cross and Blue Shield of Florida and has been a member of RIMS for close to 33 years and served on its board of directors for nine years.

“For far too long, the mention of ‘risk’ has struck fear in board rooms around the world,” said Phelps. “As President of RIMS I want to focus on the resources and services that will better equip our members to demonstrate how a more comprehensive understanding of risk can help straighten the path for an organization’s success and exploit the opportunities risk offers every company.

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I sincerely look forward to the year ahead and to helping our members advance their organization’s risk management capabilities in all business disciplines.”

In the meeting, Phelps stressed that what he sees for the future of RIMS consists of:

  • Being a global leader in all aspects of risk management, which aligns with the vision of RIMS
  • Helping RIMS members add value to their organizations, which will advance risk management in their organizations and help them connect at the c-suite level, which connects to the RIMS mission
  • Bring the next generation of risk management leaders into the fold now, so they can network with risk managers that have lived through the evolution, access the education available to them to enhance their skills and utilize practical resources