Author Archives: Morgan O'Rourke

About Morgan O'Rourke

Morgan O’Rourke is editor in chief of Risk Management magazine and director of publications for the Risk & Insurance Management Society (RIMS).
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Preparing for Hurricane Season

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With less than two weeks weeks until the official start of the Atlantic hurricane season on June 1, organizations and homeowners alike are hoping that this year’s season mirrors that of 2013, which was one of the quietest in 30 years. So far, most experts are predicting another relatively calm year.

Philip Klotzbach and William Gray from Colorado State University’s Tropical Meteorology Project predicted below-average hurricane activity, with nine named stroms, three of which would be hurricance and only 1 would be a major hurricane (Category 3 or higher). According to their research, there is only a 35% chance of a major hurricane making landfall in the United States. the average for the last century has been 52%.

Accuweather.com predicted similar numbers with 10 named storms, 4 hurricanes and 2 major hurricanes. these number are all below normal levels as established by the National Oceanic and Atmospheric Administration (NOAA).

Of course, as Klotzbach and Gray point out, it only takes one hurricane making landfall to make it an active season for coastal residents.That means preparedness it vitally important. The Insurance Institute for Business & Home Safety (IBHS) recommends that property owners in at-risk regions focus on five areas to protect their property:

  1. Prepare your surroundings to reduce damage from wind-borne debris.
  2. Protect building openings.
  3. Strengthen roofs.
  4. Ensure the building is tied together (meaning that the roof is secured to the walls and the walls to the foundation).
  5. Properly elevate the building.

Business owners should also remember that sometimes risks can come from some unexpected places. In an article by Caroline McDonald in Risk Management, she spoke to Ron Hayes, who now works as a public entity commercial producer at Arthur J. Gallagher Risk Management Services. He was previously school board risk manager for the Calcasieu Parish, in Lake Charles, La., where he weathered Hurricane Katrina in August 2005 and, a month later, Rita:

When law enforcement returned to police the community and prevent looting after Hurricane Rita, for example, they had 500 flat tires in the first week from running over nails and debris. “You don’t think about things like that until it happens,” he said. “Until you have the tire store up and running, what are you going to do?” The department has since made arrangements to access tires whenever needed. “Pre-storm planning is so important for post-storm recovery,” Hayes said.

The lesson, as always, is that being prepared is always a good thing. As the saying goes, it’s better to have and not need, than to need and not have.

Lessons from an Olympic Champion

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DENVER—When RIMS keynote speaker Bonnie St. John was five years old her right leg was amputated below the knee because of a medical condition. For most people, it would have been a devastating disability, but St.John was not most people. Instead she became, of all things, a competitive skier. As a member of the 1984 U.S. Paralympic team, she was the first African-American to win an Olympic medal as a ski racer, taking home bronzes for slalom and giant slalom and a silver for overall performance. In effect, she said that made her the second fastest woman on one leg that year.

It was an impressive achievement to say the least and her thoughts on the experience were even featured on a Starbucks cup that read, “I was ahead in the slalom.

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But in the second run, everyone fell on a dangerous spot.

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I was beaten by a woman that got up faster than I did. I learned that people fall down, winners get up, and gold medal winners just get up faster.”

St. John said that, for her, a normal life wasn’t an option, but “normal is overrated.” Rather, she challenged risk managers in the audience to follow her example and aim higher in their careers. “Be you,” she said. “Be extraordinary.”

St. John expressed a lot of admiration for risk management’s ability to prevent disasters, thanking them for all the things that didn’t happen last year. But after reviewing a list of the past year’s risk events, understandably wondered if risk managers were just “incredible pessimists” given all the bad things they have to deal with. Upon further reflection, though, she said she came to the fitting conclusion that risk managers “practice a special brand of optimistic pessimism.” They know bad things will happen but they are also confident that they can take steps to prevent disaster, which seems to be as accurate a description of a risk manager’s mentality as any I’ve ever heard.

But as valuable as she thought risk managers were, St. John thought that there was still room for them to become world class by taking advantage of expertise of their peers, something she called a “community of champions.” By becoming more “helpable” and receptive to learning and growth opportunities, risk managers could achieve even greater success. “What’s possible for you is more than you can imagine.”

Coming from a one-legged ski champion, it was a lesson that was hard to ignore.

Jordan Belfort Delivers Keynote at RIMS 2014

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DENVER—In his opening keynote address at RIMS 2014, Jordan Belfort, the infamous “Wolf of Wall Street,” spoke about the moment when his successful business career took a wrong turn. It wasn’t a big dramatic moment that set off major regulatory red flags, but rather a minor ethical lapse that went largely unnoticed.

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The problem was “the ethical line moved,” he said, and it became easier and easier to compromise on his standards until eventually he was thrown in jail for securities fraud.

This proverbial death by a thousand cuts should sound familiar. It is the same thing that happened during the subprime mortgage crisis when greed got the better of mortgage brokers as they stopped really evaluating the credit worthiness of prospective borrowers. And it is the same thing that happens in any organization when complacency sets in and risks are overlooked. As Belfort said, it is the result of “human beings not using common sense” and relying too much on models to make decisions for them.

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For risk managers, it is a reminder to never lose sight of the details because details are what can create the biggest headaches.

For Belfort, it took 22 months in jail, millions of dollars in restitution payments and a family upheaval for him to learn the lesson that, “success in the absence of ethics and integrity is not success—it’s failure.”

Belfort said he regrets the harm he caused with his reckless and unethical behavior and cautioned those that are new to the business world to always do a gut check of the business they are involved in and not take it for granted that someone else is making sure everyone stays honest. “If something doesn’t smell right, it’s probably not right,” he said.

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He also advised students to master the art of persuasion and communication. It’s a skill that is great for salespeople who are trying to get a client to see positive potential, but it is also great for risk managers who are trying to communicate risk and make sure that the organization takes appropriate measures to address it.

But the point, ultimately, is that ethical behavior leads to greater success than just going for the quicker buck. Contrary to Gordon Gekko’s motto, “greed is not good,” Belfort said. “Passion is good.” At the very least, it certainly beats prison.

The Rise and Fall of Captive Reinsurers in the Mortgage Market

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Before the collapse of the housing market in 2008, it was common for large, high-volume mortgage lenders to form captives to spread their exposures to property mortgage insurance (PMI). But once the market bottomed-out, these arrangements fell under greater legal scrutiny and many courts are now finding them lacking. According to attorneys David McMahon and Peter Felsenfeld of Barger & Wolen, in a new online article in Risk Management magazine, the way premiums are collected by the captives may be a violation of federal law.

Mortgage reinsurance captives…are not funded by premiums paid by the parent company. Just like a standard reinsurer, they operate by collecting premiums from the PMI provider and sharing in the payment of losses. They are “captives” by virtue of their relationship to the parent institutional lender. In that way, they appear to the outside world just like any other wholly owned subsidiary of the lender.

Once commonplace, this arrangement may create legal exposure to lenders that outweighs the benefits of reinsuring through a captive. Courts are increasingly frowning on the captive mortgage reinsurer model, allowing class actions to proceed against lenders that allege the premiums generated constitute improper referral fees or even “kickbacks.”

As the authors report, court decisions over the last few years are increasingly chipping away at the concept of mortgage reinsurance captives and putting lenders on the defensive. For more, you can read the entire article at RMmagazine.com.