Author Archives: Jared Wade

About Jared Wade

Jared Wade is a freelance writer and former editor of the Risk Management Monitor and senior editor of Risk Management magazine. You can find more of his writing at JaredWade.com.
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Talking Insurance With Wells Fargo Insurance Services CEO Neal Aton

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At RIMS 2011 Vancouver a few weeks ago, I got the chance to speak with Wells Fargo Insurance Services President and CEO Neal Aton to discuss the current state of the market and his company’s expansion over the past decade, something accelerated by the Wachovia merger at the end of 2008. Much like most other insurance executives I have spoken with over the past several months, he believes that the confluence of catastrophes and other market realities have led to a bottoming out of premium pricing for the P/C market.

“It seems that from a pricing standpoint, we’re finding the bottoms in the market,” said Aton. “There are a couple things I think are happening. We see global events that are going to drive reinsurance costs. You see local events which will drive direct losses in the marketplace. I think the property market is a place where there is … a sensitivity to events.”

In addition to the many, many loss events that have battered insurers, he sees a reactionary mentality developing across the industry. And he thinks that once pricing starts to go in the other direction, many carriers will follow suit.

“I think the psychology of the market is such that it seems to me that there is a willingness to follow a price leader,” said Aton. “While the facts may refute that, I think there’s just a mentality that the market’s finding a bottom. I wouldn’t call it a hardening of the market but I think there’s a firming of the market.”

Of course, the P/C industry is not some monolithic collection of policies all moving in unison. Different market segments will continue to behave differently. He doesn’t see the same level of firming in casualty as with property, for example. And he certainly doesn’t see it in D&O. “There’s still plenty of capital running around,” he said.

As for workers comp, he expects a drastic change.

“However, in workers comp, it’s hardening,” he said. “Clearly.”

For Wells Fargo, this will be the first major market shift that the company has undergone as a major player in the insurance market. It  jumped into the business with its acquisition of Accordia in 2001, and while it did navigate through the ensuing market cycle, it did not have nearly the same scale of operations as it does today. Its subsequent acquisition of ABD Insurance & Financial Services (in 2007) and merger with Wachovia (in 2008) have changed the game, turning it into the fifth largest brokerage in the world, according to Business Insurance.

While Wells Fargo Insurance Services is headquartered in Chicago, this growth has caused it to remain a very decentralized operation with 6,000 employees spread out in 200 offices. For Aton, that is a good thing, since the different offices can maintain “a deep commitment to a local market” but also retain “a window into a national resource.”

But you can be too decentralized to an extent that the mothership loses track of what each location is doing. So Aton thus spends a lot of his time trying to devise ways to maintain a good balance between a vast, dispersed network of employees who can reach all segments of the market and ensuring that the whole team remains connected with a common mission. Keeping this connectivity between company resources and the insurance buyer is not easy, but it is the goal.

“It’s hard to deliver, but when you deliver it, boy, it’s magic for a customer,” said Aton.

The main reason the company sees insurance as such a good area of business is that its banking operations allow different units to “cross sell” very easily. It already has so many corporate clients receiving financial services from other parts of the company that adding insurance to their portfolios seems like a natural fit. Right now, about 25% of the insurance side’s business comes from such cross sales with the remaining 75% coming from the market. “I aspire to have that grow to about half-and-half…not by shrinking that side but by making the pie bigger,” said Aton. “We’re on track to do that.”

Currently, Aton’s team supplies one out of every 13 to 15 of those customers who already do other business with Wells Fargo. Aton wants that number to be one out of every five. “That would imply somewhere around tripling our business,” said Aton, later adding that “getting to that is as much about marketing ourselves not only in the marketplace [but] marketing ourselves within Wells.

As the insurance side becomes more a core piece of Wells’ overall business, this will become increasingly easy, he believes.

“We start a conversation with another business [unit] not by saying ‘should we work together?’ It’s ‘how do we work together?’ It’s assumed that we’re working together. That’s the culture—we share our toys. That has taken building muscle memory.”

When I asked him if increasing revenue on the insurance side will also entail expanding through acquisition, he was unequivocal. “Absolutely,” he said. “Absolutely. I think it’s a good time to continue to acquire.”

Integration is never easy, but the Wachovia experience has left Aton optimistic for future opportunities. “In the insurance space, I don’t want to say [the Wachovia merger] was easy, but I wish they all worked so perfectly as that one did,” he said. The key benefits, aside from the integration ease (something they finished on the insurance side in 15 months) were the greater market reach the merger gave Wells Fargo into the Southeast and the complementary risk management and employee benefits talent that Wachovia brought.

Right now, 20% of Aton’s company’s business is in the employee benefit space. He wants to double that over the next five years. This is something that was evolving naturally on its own. And then health care reform came around and provided an even larger impetus to expand in the benefits area. “Number one, it’s a good business,” said Aton. “But the major driver is that our customers need help. There are just so many questions in flux in the health care space.”

So in health care, as in insurance and risk management services, he doesn’t see any end in sight to his company’s expansion.

“There is just a huge demand as customers, from small business owners up to CEOs and CFOs, say that the relevance of insurance and risk management is huge — huger than it’s ever been,” he said.

Survey Says? Risk Management Raises Profitability

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A new report from the Economist Intelligence Unit and Oracle Financial Services sheds further light on the elevation of risk management since the financial crisis. The general conclusion is similar to the one we have been hearing ad naseum since a failure of risk management tanked the global economy.

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As stated in “Transforming the CFO Role in Financial Institutions:  Towards Better Alignment of Risk, Finance and Performance Management” (PDF):

In such a challenging environment, financial institutions must now devise a sustainable growth strategy and be better protected against new or emerging risks. To do so, many finance departments are recasting their business processes in an effort to provide better access to information for internal decision-making, risk management, financial reporting and regulatory compliance.
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Blah blah blah. Same ol’, same ‘ol. Rhetoric and platitudes.

Right?

Maybe not.

This report, in addition to re-stating the need for better risk and finance alignment is actually speaking about evidence directly rooted in the bottom line. The execs surveyed are reporting that financial firms are more profitable when these two departments are in sync.

Financial institutions that benchmark themselves well on aligning their risk and finance functions also say they are doing better financially. Among survey respondents, of those who rank themselves much better than their peers at alignment between risk and finance, 60% are also much better at financial performance and 92% are above average. The equivalent figures for those who are average or worse at alignment are 8% and 32% respectively. The benefits are both specific, such as identifying potentially profitable clients, and general, such as providing a greater understanding of the global context in which major strategic decisions are made.

Those numbers seem substantial.

And this is not just a reality in 2011; this was the case all along. Those firms that prioritized risk management the most — not just rhetorically, but by paying big bucks for talented risk managers with decision-making insight — fared much better in 2008 than those that didn’t.

Research shows that at the 15% of US banks where the chief risk officer (CRO) was among the five highest-paid executives in 2006, the proportion of total assets made up by mortgage-backed securities at the time of the crisis was one-fortieth that of banks where the CRO was less well paid.

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There is even a correlation between higher CRO pay and lower stock volatility.

One-fortieth. That’s 1/40th. Or 2.5% if you prefer.

So you’re telling me that companies that committed to paid risk managers who they valued as decision makers to foresee, navigate through and mitigate pitfalls did much better in avoiding risks than those that didn’t? You don’t say?

For the past three years, we have repeatedly been saying that if this financial meltdown isn’t enough to move the needle on pushing risk management up the corporate hierarchy, nothing will be. But as more and more insight like this in unveiled, it’s hard to believe that companies can continue to ignore the obvious: risk management saves — and makes — money.

Consumer Financial Protection Bureau Head Accused of Lying at House Committee Hearing

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The first and second rules of Congressional Fight Club is that you don’t talk about Congressional Fight Club. The third rule is that if a new bureau head spends her time in front of a committee hearing being evasive and, allegedly, lying … she has to fight.

Or something like that.

What happened during today’s hearing was that Representative Patrick T. McHenry (R-NC), chairman of the House Oversight Committee, accused Consumer Financial Protection Bureau head Elizabeth Warren of misleading lawmakers in earlier testimony about her role in talks between government authorities and mortgage-servicing companies. McHenry also called Warren out for, according to him, reneging on her agreement to appear before the committee this week.

After an hour in which Ms. Warren repeatedly parried efforts by Mr. McHenry and other Republicans to nail her down with “yes or no” answers to questions concerning her testimony in March and about the bureau’s powers and responsibilities, Mr. McHenry moved to temporarily recess the hearing to allow members to travel to the House floor for a vote on an unrelated matter.

Ms. Warren objected, saying that she had juggled her schedule as the committee repeatedly changed the time of the hearing in recent days and had agreed to be present for only an hour.

A vigorous back-and-forth ensued.

“Congressman, you are causing problems,” Ms. Warren said. “We had an agreement.”

“You’re making this up,” Mr. McHenry replied. “This is not the case.”

The argument, an unraveling of the decorum that usually characterizes discussions among even the most fervent opponents during Congressional hearings, demonstrated the level of frustration that some Republicans apparently feel over the consumer agency, which was established as part of the Dodd-Frank Act that followed the financial and mortgage crisis.

The hearing Tuesday was intended to address the oversight that Congress should require for the agency.

Instead? Nothing got accomplished.

So … it looks like, nearly one year later, everyone is still totally thrilled with Dodd-Frank and that its implementation will continue to go swimmingly for all involved parties.

Reform is so easy.

Rep. Patrick McHenry.

The Deadliest Tornado to Hit the United States in 50 Years Kills More Than 100 in Joplin, Missouri

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This weekend, a massive tornado struck Joplin, Missouri, devastating yet another Midwest town with vicious winds. At least 90 people are dead and some 2,000 structures are no longer standing.

Residents received a 24-minute warning that a tornado was headed toward the city, giving many a few precious moments to gather children and run for safety. When the tornado struck, it caused what officials are estimating to be a path of damage through Joplin that was a mile wide and four miles long, with wind speeds reaching 166 miles per hour.

As much as 30 percent of the town was damaged, including more than 2,000 buildings, among them a nursing home and several schools, firehouses and large stores, including a Wal-Mart and a Home Depot. Water treatment and sewage plants were also hit by high winds, and authorities cautioned residents to boil water.

It was the deadliest tornado to hit the United States in more than 50 years. (video above also via this Telegraph article)

Officials said the last twister to cause such loss of life in the US occurred in 1953 in Worcester, Massachusetts, and killed 90 people.

The Joplin tornado was one of 68 reported across seven Midwest states over the weekend, from Oklahoma to Wisconsin. An outbreak of twisters killed more than 300 people and caused more than $2 billion (£1.24 billion) in damage to the US South last month.

For more info and media related to the twister, visit Mashable, the Weather Channel and The Lede.

And for those affected, the Insurance Information Institute has some good advice on how to get your tornado insurance claims paid quickly.

The I.I.I. offers the following advice to speed the insurance claims settlement process following a tornado:

  • Be prepared to give your agent or insurance company representative a detailed description of the damage to your property. Your agent will report the loss to your insurance company or to a qualified adjuster who will contact you as soon as possible in order to arrange an inspection of the site.
  • If it is safe to access the area, take photographs of the damaged property. Visual documentation will help with the claims process and can assist the adjuster in the investigation.
  • Prepare a detailed inventory of all damaged or destroyed personal property. Make two copies—one for yourself and one for the adjuster. Your list should be as complete as possible, including a description of the items, dates of purchase or approximate age, cost at time of purchase and estimated replacement cost.
  • Collect canceled checks, invoices, receipts or other papers that will assist the adjuster in obtaining the value of the destroyed property.
  • Make whatever temporary repairs you can. Cover broken windows and damaged roofs and walls to prevent further destruction. Save the receipts for any supplies and materials you purchase as your insurance company will reimburse you for reasonable expenses incurred by making temporary repairs.
  • Secure a detailed estimate for permanent repairs to your home or business from a licensed contractor and give it to the adjuster. The estimate should contain the proposed repairs, repair costs and replacement prices.
  • If your home is severely damaged and you need to find other accommodations while repairs are being made, keep a record of all expenses, such as hotel and restaurant receipts.