Category Archives: Property/Casualty

Ernst & Young CRO Survey Highlights Expanding Authority, Top Challenges for 2014

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Ernst & Young has released its new 2014 insurance CRO survey, “Increasing authority and higher organizational profiles,” highlighting top trends and challenges reported by chief risk officers and senior risk executives from more than 20 top American insurance companies. Top themes in this year’s results were the expansion of CRO authority, the challenge of managing the “tsunamis” of effects stemming from new domestic and international regulation, and shifts in CRO focus from survival to effectiveness. Those surveyed also reported that they are spending more time with the board and senior business leaders, and that they are becoming involved in more types of business issues. ERM was also a top accomplishment and key priority for risk managers looking ahead to 2014 challenges.

Some particularly interesting responses to the new study include:

What was your most important accomplishment over the past year?

EY Question 1 Graph

To which will you devote significantly more attention in the next 12 months, compared with the last 12?

EY Question 2

How do you know your risk function is creating value?

EY Question 4

Other than the four main risk categories (credit, market, insurance and operational risks), what risk management areas are you responsible for?

EY Question 10

What is your access to the board?

EY Question 11

Click here for the full report.

Are Drone Cargo Ships the Next Step in Supply Chain Automation?

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Rolls Royce Drone Ships

Ahoy, robots!

The $375 billion shipping industry, which carries 90% of world trade, is next in line for drones to take over—at least, that’s what Rolls-Royce Holdings is betting on. The London-based engine manufacturer’s Blue Ocean development team has already set up a virtual-reality prototype in its Norwegian office that simulates 360-degree views from a vessel’s bridge.

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The company hopes these advanced camera systems will eventually allow captains in control centers on land to direct crewless ships. The E.U. is funding a $4.8 million study on the technology, and researchers are preparing a prototype for simulated sea trials next year.

“A growing number of vessels are already equipped with cameras that can see at night and through fog and snow—better than the human eye, and more ships are fitted with systems to transmit large volumes of data,” said one Rolls-Royce spokesperson. “Given that the technology is in place, is now the time to move some operations ashore? Is it better to have a crew of 20 sailing in a gale in the North Sea, or say five people in a control room on shore?”

Crew costs of $3,299 a day account for about 44% of total operating expenses for a large container ship, industry accountant and consultant Moore Stephens LLP told Bloomberg News. By loading more cargo and replacing the bridge and other systems that support the crew, such as electricity, air conditioning, water and sewage, ships can cut costs and boost revenue, claims Oskar Levander, Rolls-Royce’s vice president of innovation in marine engineering and technology. The ships would be 5% lighter before loading cargo and would burn 12% to 15% less fuel, he reported.

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Unmanned ships would require captains to operate them remotely and people to repair and unload them in port, but the lack of crew at sea could change the landscape of piracy. Without people to take hostage, the risks would greatly reduce—as would the need for for kidnap and ransom insurance premiums. The material being transported, however, could be even more vulnerable without a human line of defense.

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Further, the remote operating system opens the door to digital hijacking from hackers or cybercriminals.

Currently, human error—most notably tied to fatigue—causes most maritime accidents, according to Allianz. But, as the 600,000-member International Transport Workers’ Federation is quick to point out, humans are also the first line of defense in a field plagued by unpredictable conditions. “The human element is one of the first lines of defense in the event of machinery failure and the kind of unexpected and sudden changes of conditions in which the world’s seas specialize,” Dave Heindel, chairman of the ITF’s seafarers’ section, told Bloomberg Businessweek.

Drone cargo ships would represent the latest part of a rapidly automating supply chain. As Wired pointed out, as customers’ desire for ever-more-instant gratification mounts and companies like Amazon find ways to drastically cut shipping costs with technology, consumer pressure may make this too tempting a development to pass up.

Trends and Predictions for Retailers

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Last year, retail and consumer packaged goods (CPG) companies faced challenges stemming from evolving regulatory compliance, brand exposure, reputational risk and increasingly complex global supply chains. No doubt 2014 will prove to be a pivotal year for organizations to demonstrate their focus and commitment to strong governance, risk management, and compliance in order to truly emerge as leaders. Here is a look at some top trends that have influenced the industry, and a few predictions that will shape the year ahead.

2013 Key Trends:

Increased Volume and Complexity of Regulations. In 2013, the retail/CPG industry faced a flurry of new and amended regulations spanning environmental compliance, conflict minerals reporting, product safety, data privacy, anti-corruption, product packaging and labeling to name a few.

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Ensuring compliance and staying one step ahead of regulators requires that retail and CPG organizations establish more centralized and collaborative compliance programs.

Managing the Supplier Ecosystem. We saw that environmental, man-made, and human rights issues can threaten the financial stability and reputation of retail and CPG organizations. Establishing a unified view of the organization and its entire supplier ecosystem requires consistency and transparency, which can be achieved only through stronger due diligence, monitoring, and reporting processes.

Focus on Collaboration. In response to increased compliance mandates, and added complexity throughout the supply chain, internal business functions have begun converging and collaborating in new ways. A strong, compliant, and risk-aware organization brings together the right people, the right skill sets, and necessary resources against a shared vision, mission, and purpose.

2014 Predictions:

Rising Importance of Reputation. Non-compliance, fines, product recalls, bribery and corruption allegations, customer activism, factory fires, and health and safety issues have put many retail and CPG companies in the hot seat.

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These incidents not only play out over front-page headlines, but can spread virally across social media sites in a matter of minutes. In 2014, building and maintaining an organization’s reputation will become a matter of survival.

Complying with the Affordable Care Act (ACA). The ACA impacts retail companies that employ a significant number of temporary workers. According to the ACA, health insurance must be provided to full time employees who work at least 30 hours per week. In the retail industry, however, employees who work at least 40 hours per week have traditionally been considered full-time. Overcoming this discrepancy will require new policies and processes that will impact employees, human resources teams, and compliance executives alike.

Investments in Technology. As operations expand and supplier ecosystems become more diverse, organizations will be faced with new opportunities and new challenges. We will see organizations continue to focus on integrating the activities of multiple functions.

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Investing in new technologies and tools to help integrate quality customer service, regulatory compliance, supply chain governance and security can help organizations realize greater efficiencies, enhanced agility and improved business performance.

TRIA Advocates Testify in Favor of Long-Term Extension

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On Tuesday, February 25, the Senate Banking, Housing, and Urban Affairs Committee held a hearing on “Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market.” Witnesses from several industry groups advocated for a long-term, if not permanent, extension of the program beyond its current deadline of December 31, 2014.

“The availability and affordability of adequate insurance coverage for acts of terrorism is not only an insurance issue, but an economic one,” said RIMS President Carolyn Snow. “By providing a backstop, and assuming some of the market terrorism risk as a reinsurer, the federal government has freed up capacity in the private market that would not otherwise exist.”

Douglas Elliot, president of commercial markets for The Hartford Financial Services Group, and speaking on behalf of the American Insurance Association, argued against any sweeping changes to the current TRIA program. “A number of proposals that have been discussed could-in the name of increasing private market capacity for terrorism risk-actually lead the industry to a tipping point beyond which individual insurers would need to make difficult decisions to safeguard a company’s financial condition instead of maintaining the current level of exposure to catastrophic terrorism risk.”

Many witnesses, including W. Edward Walter, president and CEO of Host Hotels & Resorts, on behalf of the Coalition to Insure Against Terrorism, addressed the effect that TRIA’s uncertainty will have on the lending industry. “The lack of clarity around this issue will likely slow the pace of new financing, especially in the case of properties that are perceived to be a higher risk of terrorist attacks such as high profile buildings and real estate generally located in key gateway urban markets.”

When asked for the ideal duration of a TRIA extension, all of the witnesses asked for a permanent solution with ten years being a minimum timeframe for an extension.

This is the second hearing that the Senate Banking Committee has held on the issue. Committee leadership seemed to understand the urgency and expressed a desire to move on the issue sooner rather than later; however, House leadership has expressed a desire to make changes to the legislation which could slow action on an extension as those changes are debated.