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Risk Management, Board Collaboration Can Bolster Cyber Defense

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Risk management executives are charged with preparing companies for, and protecting them from, a broad array of emerging risks. Today, there is perhaps no threat that poses more danger than a cyberattack, which could result in a data breach or compromising sensitive information. Given the rapid increase in frequency and severity of high-profile cyberattacks in recent months, organizations must confront cybersecurity issues with greater focus, specificity and commitment.

Of note, an astounding 43% of U.S. companies experienced a data breach in the past year, according to the Ponemon Institute’s 2014 annual study on data breach preparedness, a 10% increase from 2013. These alarming trends are compelling companies to create programs centered on cyber risk awareness, education and preparedness. These programs are vital to the company’s performance and growth; the 2014 Cost of Data Breach Study by IBM and the Ponemon Institute reveals that the average cost to a company from a data breach was about $3.5 million per breach in 2014 – a 15% increase since last year. A company’s intellectual property and customer data may also be compromised in a cyberattack, expanding potential casualties beyond financial losses.

Risk management executives cannot confront this issue alone. Because the responsibilities of management and boards of directors are not limited to having a thorough understanding of cybersecurity issues, they must also be aligned on a clear-cut strategy for both preventing and responding to cyberattacks. This strategy includes efforts to improve education, implement preparation measures before an attack strikes and continued adherence to best practices in all board-related activities.

Awareness and Education

At the most fundamental level, boardrooms must increase the company’s resiliency in the face of cybersecurity threats by increasing awareness of the topic and the associated risks. Unfortunately, boardrooms are struggling to properly educate directors on the topic: a 2012 Carnegie Mellon poll of how U.S. boards are managing cyber risks found that 71% rarely or never review privacy and security budgets, 80% rarely or never review roles and responsibilities, and nearly two-thirds rarely or never review top-level policies. Additionally, more than half of directors surveyed rarely review security program assessments. Every director should make cybersecurity a topic on the board’s agenda and ask questions if there is any confusion or doubt.

Preparation

Directors who are properly aware and educated on the topic of cybersecurity are therefore more prepared and versed in the case of a crisis, not only as individuals but as a collective management team. Given the potential economic consequences of these attacks, it is essential that boardrooms are aligned on the company’s response strategy. It is critical that there be a clear understanding among all levels of a management team about who is responsible for managing this issue. Directors who are familiar with their company’s IT department are better able to determine if the team is equipped to effectively address cybersecurity. Cyber policies must remain updated and understood by all in order to decrease chances for exposure.

Best Practices

A critical part of boardroom preparedness is ensuring that directors are pursuing best practices to decrease changes for exposure and there increase resiliency. There are several practices companies can adopt to ensure this level of preparation:

  • Education and preparation: Board members must be educated on cybersecurity and its risks so that they are prepared to manage any situation or crisis. Oftentimes, companies increase their vulnerability by failing to provide directors with the proper tools and information.
  • Secure communication: Companies must provide board members with a secure way to share and communicate about critically sensitive information. In order to prevent careless oversharing, this information should never be sent via email. Board members must have a thorough understanding of cloud services. Although these solutions provide an easy way to upload and download files, many have been successfully hacked, compromising private files and email addresses.
  • Collaborate and strategize: When directors have a clear understanding of cyber security and the associated risks, they are more equipped to collaborate and strategize around managing any issues related to cybersecurity. With increased board-level conversation about cybersecurity, directors are able to determine if managing cybersecurity is the purview of the audit committee, a separate committee, the company’s IT department or CIO.

Education, awareness and preparedness are critical components to help mitigate vulnerability and risks of cyberattacks. Boardrooms must be open to embracing new strategies and technologies in order to ensure their communication capabilities are secure while remaining fast and accessible. Organizations need to prioritize cybersecurity training to ensure that boardrooms are acting in the company’s best interest and are confident in its cyber crisis response strategy. Although risk has been an evolving factor impacting businesses of all types and sizes throughout history, cybersecurity presents a new challenge—and it is one that can be confronted successfully with the correct management strategy and tools.

Companies Report Increased Optimism and Risk Appetite

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Heading into the fourth quarter, private companies reported higher profitability, greater risk appetite, and notable plans for growth in 2015, according to a survey from PwC.

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The Q3 “Trendsetter Barometer” reports that more companies are seeing profitability increases, and optimism about the U.S. economy rose to 63%—the highest level since early 2011.

The study’s most notable findings include:

PwC Trendsetter Barometer

About 80% of companies expect revenue growth in 2015, with almost a third projecting double-digit change. When planning for that success, the biggest anticipated challenges reported will include direct hits to the supply chain and the workforce:

PwC Growth

Tips for Safe Winter Driving

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Winter is suddenly upon us. In Buffalo, New York, four deaths have been attributed to a winter storm that dumped up to six feet of snow. The storm was blamed for three more deaths in New Hampshire and Michigan. Whether commuting to work, driving a long-haul truck or overseeing a fleet of vehicles, winter presents business hazards. To stay safe and on the road during inclement weather, experts advise keeping vehicles in top condition with frequent safety checks. The National Highway Traffic Safety Administration reports that “failure to keep in proper lane or running off the road” and “driving too fast for conditions” are the two of the most frequent driver behaviors causing accidents.

For safe winter driving, the NHTSA urges drivers to:

• Check your battery

• Check your cooling system

• Fill your windshield washer reservoir

• Check windshield wipers and defrosters

• Check floor mat installation to prevent pedal interference

• Inspect your tires

• Check the age of your tires

• Stay vigilant while driving

Long-haul truckers have special concerns. ShiftintowinterBC urges drivers to be on the lookout for black ice. Ice buildup on windshield wipers is a sign that conditions are favorable for black ice. Drivers should also slow down when approaching shaded areas, overpasses and bridges—portions of the road that freeze sooner than others. The organization recommends dropping speeds to match conditions, leaving more distance from the vehicle in front and pulling off the road if driving conditions become too extreme.

To avoid potentially dangerous situations, the Insurance Information Institute (I.I.I.) offers these winter driving tips:

  • Give yourself enough time to arrive at your destination. Trips can take longer during winter than other times of the year, especially if you encounter storm conditions or icy roads.
  • Bring a cellphone so that those awaiting your arrival can get in touch with you, or you can notify them, if you are running late. But avoid the temptation of using the phone while driving, as it can be a dangerous distraction—pull over first.
  • Drive slowly because accelerating, stopping and turning all take longer on snow-covered roads.
  • Leave more distance than usual between your vehicle and the one just ahead of you, giving yourself at least 10 seconds to come to a complete stop. Cars and motorcycles usually need at least 3 seconds to halt completely even when traveling on dry pavement.
  • Be careful when driving over bridges, as well as roadways rarely exposed to sunlight—they are often icy when other areas are not.
  • Avoid sudden stops and quick direction changes.
  • Be sure to keep your gas tank full. Stormy weather or traffic delays may force you to change routes or turn back. A fuller gas tank also averts the potential freezing of your car’s gas-line.
  • Keep windshield and windows clear. Drivers in cold-weather states should have a snow brush or scraper in their vehicle at all times. Your car’s defroster can be supplemented by wiping the windows with a clean cloth to improve visibility.
  • Do not activate your cruise control when driving on a slippery surface.
  • Do not warm up a vehicle in an enclosed area, such as a garage.
  • Keep your tires properly inflated and remember that good tread on your tires is essential to safe winter driving.
  • Check your exhaust pipe to make sure it is clear. A blocked pipe could cause a leakage of carbon monoxide gas into your car when the engine is running.
  • Monitor the weather conditions at your destination before beginning your trip. If conditions look as though they are going to be too hazardous, just stay home.

 

The Cost of Savings: Checking Medical Bill Review Charges

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Here’s a provocative question for all the risk managers out there: what did you pay last year in workers compensation medical bill review charges?

Stumped? The answer may be more elusive, and more expensive, than it would initially appear.

Medical bill review is an essential service typically performed by an insurer, claims administrator, or outside vendor. The service provider reviews medical bills related to claims and audits the bills for accuracy, duplication of charges, and reasonableness. The costs for these services are allocated claim expenses, meaning they get charged directly to the claim file. This makes figuring out what you’re paying more difficult, as bill review charges tend to blend in with other expenses and bills.

Bill review charges are typically calculated in two ways. First, for each bill, there is a standard review charge. This could be a flat rate or calculated by the number of lines. Second, for bills that are outside of medical provider networks and are negotiated, a percentage of the savings are charged.

This last piece is critical, because it means that charges for a single bill review can be thousands and sometimes even tens of thousands of dollars.

Here’s an example. Suppose an employee injures his back and is forced to have surgery, but does so at an out-of-network facility. The hospital bills $200,000, an amount it has no illusions of receiving. As part of the medical bill review process, the bill is negotiated down to $50,000, netting a savings of $150,000. The charge for the bill review is a percentage of the savings, typically between 20-30%. If we assume conservatively that the rate is 20%, in this example, the charge for the bill review service would be $30,000. For self-insureds and those with large retentions, this a cost paid directly out of pocket.

This example highlights two important facts. The first is that network penetration is of prime importance—when a patient is treated at an in-network facility, the bill is generally reduced to the pre-negotiated rate at no cost to you. Second, the medical billing process in this country has created an immensely profitable enterprise for skilled medical bill reviewers.

This is not to say that paying a percentage of negotiated savings is unfavorable to a risk manager. This system aligns the interests of the bill reviewer and the party paying the bill. The more the bill reviewer can lower a bill, the more you save, even if you are ceding a percentage of that savings to claim handling expenses.

And to be fair, the above scenario is more of an anomaly than the norm—in most cases both the savings and fees are much lower.

Still, the entire medical billing strategy employed by hospitals is rather discomforting. In what other industry are bills sent out and routinely negotiated down by 50, 60, or even 75%? Certainly, there are financial motives for hospitals, many of which are owned by private equity firms, to bill higher amounts than they ever expect to receive. Not only will the unsuspecting recipient occasionally unwittingly pay the full amount, higher bills allow hospitals increased write-offs for charity care and other unpaid services. And while fee schedules in some states have attempted to address this problem, this has further contributed to hospitals and insurers, each employing competing billing experts with the respective goals of maximizing and minimizing amounts paid for the same services.

The net result is higher processing expenses for everyone.

Accepting the fact that the medical billing system in this country is the way it is, let’s return to the ,000 medical bill review charge.

As risk managers, we need to continuously be concerned with our expenses. At the same time, these fees represent only a percentage of savings, and theoretically, the higher the bill review charge, the higher the savings. But the knowledge of that fact may not be enough to eliminate the sticker shock. Because medical bill review services are so essential, the only recourse is a better negotiation of fees—paying a lower percentage of savings is a good start, and a hard cap on the maximum charge for a single bill is even better. Of course, the first step is sitting down with the data and figuring out how much you’re actually paying.

That way, when someone asks you the question about how much you’re paying, you’ll not only have the answer, you’ll also have a plan to make it less.