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RIMS ERM Conference 2021: IRS Receives Global Enterprise Risk Management Award of Distinction

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On Friday, RIMS President Ellen Dunkin presented the Internal Revenue Service (IRS) with the 2021 Global Enterprise Risk Management Award of Distinction at the Society’s ERM Conference in New York City. The honor recognized the IRS’s outstanding achievements that allow it to anticipate emerging risks and establish the appropriate culture, processes and structures to strengthen strategic decision-making. 

Navigating the impacts of an extended government shutdown, sweeping tax reforms, operational disruption due to the COVID-19 pandemic and providing essential financial relief to thousands of businesses and individuals across the United States, the IRS ERM program helped the agency to remain resilient and effectively manage a multitude of dynamic challenges.

“Through the ERM program’s focus on embedding risk management capabilities into the existing structures and operations, the agency has become more risk aware,” said Jeffrey Tribiano, the IRS’s deputy commissioner for operations support. “There is also greater collaboration across the enterprise to address significant risks that require efforts from multiple business units. By effectively highlighting the enterprise-wide effects of risks, and by capturing risks on the enterprise risk profile, ERM has helped garner agency-wide attention and support for measures to help address the risks. Since IRS established its ERM program in 2014, it has played a critical role in helping the agency to better understand and respond to risk, thus making the organization more resilient and better able to serve the American people.” 

This year, RIMS honored three other organizations for their exceptional accomplishments developing, implementing and maturing ERM within their organizations. Honorees included:

  • 2021 RIMS Global ERM Award of Distinction Honorable Mention: Dallas Fort Worth International Airport
  • 2021 RIMS ERM Award of Distinction–U.S. Honoree: Eversource Energy
  • 2021 RIMS ERM Award of Distinction–International Honoree: EuroChem

“Enterprise risk management continues to deliver exceptional value to organizations, allowing them to successfully address emerging risks while also identifying and leveraging opportunities that might not have otherwise been apparent,” Dunkin said. “Risk professionals get better—and deliver better results—by learning from each other. We are so grateful to the IRS and all of honorees for sharing their ERM journeys with the RIMS community and doing their part to advance this rewarding profession.” 

Judging criteria for the Global ERM Award of Distinction include measurable, tangible and sustainable results; unique program strengths; ERM innovation that links risk with strategy or performance; and the program’s ability to build sustaining risk management capabilities. The panel comprises members of RIMS Strategic and Enterprise Risk Management Council.

RIMS ERM Conference 2021 was held November 11-12 in New York City and virtually. The program themed “ERM in an ESG World” focused on the growing risks stemming from environmental, social and governance challenges.

RIMS ERM Conference 2021: Integrating Net Zero Commitments into ERM Plans

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In a session titled “Integrating Net Zero Commitments into ERM Plans” at the RIMS ERM Conference 2021, Michelle Tuveson, executive director of the Cambridge Centre for Risk Studies, led an interactive session focused on how risk managers were handling their companies’ emission reduction pledges and efforts. Tuveson told the audience that while one-third of companies in G20 countries had signed onto “net zero” commitments—promises to eventually eliminate their companies’ carbon emissions completely—it is unclear how much analysis went into these pledges. As countries around the world start to require emission reporting, this lack of analysis (plus a lack of data to assess progress) is a major concern for these companies’ risk managers.

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The audience seemed to back up this assertion.

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Tuveson conducted a live poll, which revealed that most attendees felt that their industries were on the less prepared side for net zero developments and that their ERM and net zero plans were not very integrated. When asked which group was most driving their companies’ climate action, most answered that it was investors/rating agencies (31%), followed by the board and executive management (20%), consumers (17%), and peer companies (11%).

Tuveson was joined by Joerg Osterloh, director of enterprise risk management at Coca-Cola Europacific Partners, who outlined the company’s net zero activities.

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With a commitment to be net zero by 2040, it had already reduced emissions across the company by 30% by 2019. The company was prioritizing this effort partially because it saw climate change risks “front and center,” impacting all aspects of its supply chain.

Osterloh credited a strategy that included analyzing how much emissions each sector of the company’s business produced, then strategically addressing each. For Coca-Cola Europacific Partners, the most emissions came from drink packaging, which was not as easy to reduce as other categories like operations and supply cooling. Overall, Osterloh noted the importance of being fully transparent in the company’s net zero activities and its advocacy to influence public policy on transitioning to a low carbon future. He also stressed investing now in new technologies, rather than waiting for those technologies to mature.

At least some risk managers and their companies may already be following this advice. In a final poll, most audience members said that the focus of their companies’ net zero strategy was substituting renewable power (26%), followed by greening supply chains (19%), adopting new technologies (18%), altering products and services (15%), and purchasing carbon offsets (9%).

If you missed this session, it and many of the other sessions at RIMS ERM Conference 2021 can be viewed on-demand online.

5 Best Practices for Effective Claims Reviews

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With the cost of insurance for businesses rising across many types of coverage, staying on top of trends in the claims portfolio is more important than ever. Spotting problem areas and opportunities sooner makes it easier to develop and implement steps to reduce risk pre-loss and better control costs post-loss. For this reason, many insurers and TPAs promise to conduct claims reviews with their business customers on a regular basis, but the rigor can vary greatly. Practices that have been common historically often lack the nuance and precision that can unlock the maximum benefit for each customer’s unique situation.

Here are five best practices for a wide variety of customers across a range of industries:

1. Assemble the right team

Typically, only the person overseeing claims at the business attends the claims review with key claims staff from the carrier. However, this small team limits the potential for brainstorming solutions and getting full buy-in to implement them. In addition to claims experts, it may also be helpful for the carrier’s loss control team to attend, as well as agent/broker staff.

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From the business customer side, it is helpful to include all key personnel who can facilitate immediate decisions that will impact the ultimate resolution of the claim in an efficient and timely manner or provide other insightful information. This often includes the risk manager, and may also encompass employees from legal, human resources, safety, operations and even the CFO, in some cases.

2. Develop a clear understanding of the customer to set the claims review objective

Broadly speaking, the goal is always to minimize loss costs to help manage the price and coverage of the overall insurance program. However, each business and claims portfolio is unique. One company may be most concerned with how claims reserves are affecting budgets. Another company may have an unusually high experience modification rate that they want to bring down by reducing the frequency of worker injuries. Yet another company may be changing part of their operation and want to monitor claims activity associated with it more closely than business-as-usual activities. The policyholder’s unique objectives should drive decisions about how often to conduct the claims reviews, what types of claims to include and where to dive into the greatest detail.

3. Fully understand and account for the impact of claims on the insurance program

In the initial design of the insurance program, certain coverages may have been limited due to a problematic claims record. For instance, frequent third-party claims for premises liability may have led to restrictions on Med Pay coverage or a higher deductible to give the customer a bigger stake in safety measures.

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Or perhaps the customer hoped for a loss-sensitive program but could only secure a guaranteed cost program due to lack of an internal pre- and post-loss management platform. The claims review should be designed to account for how frequency and severity may affect underwriting decisions so that the policyholder can move toward its coverage objective

4. Choose claims for review according to objectives, not simply dollar value

The default choice for what claims to review is often based on dollar value—e.g., all open claims with incurred losses of $25,000 or more. This approach may miss underlying trends that could lead to severe loss, however. For instance, perhaps a restaurant chain experiences a high frequency of slip-and-fall claims from workers in its kitchens. While these may all have been minor, but it may only be a matter of time until a severe injury occurs.

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With the objective to reduce frequency and the risk of serious injury, the claims review should examine all slip-and-fall claims using data and analytics to uncover causal factors such as food and liquid dropped on floors or seasonal workers with little safety training.

5. Track reserving on a micro level relative to all factors that can affect open claims

Typically, reserving is only tracked from a macro perspective, but this can overlook a variety of factors that could help better manage reserves and ultimate outcomes. For example, are the latest technologies being consistently used to manage costs? Advances in artificial intelligence and data and analytics now allow us to identify treatment providers associated with the best outcomes for injured workers, but how well are companies taking advantage of the recommendations? Early resolution techniques for auto and general liability claims may lower the ultimate cost of claims but cause a short-term bump in claims payments that needs to be accounted for in the customer’s budgeting process.

Potential Benefits

Claims reviews based on these best practices can yield significant benefits, especially when used as part of a holistic approach to managing risk and reducing losses. For example, an early claims review for a new manufacturing customer identified sprain and strain injuries as a problem area. The loss control team then surveyed the manufacturer’s operations and uncovered increased risk due to various manual lifting tasks, such as loading 8-foot-tall plastic silos with heavy equipment in a confined space. Based on that finding, the insurer’s team conducted onsite job hazard analysis supervisory training that included a safe lifting program, online courses and ergonomic risk assessments on a variety of tasks. As a result, within about two years, the program cut the manufacturer’s workers compensation loss ratio roughly in half.

Court Overturns Prop 22, California’s Gig Worker Classification Law

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On August 25, the Alameda County Superior Court in California declared that Proposition 22 (better known as Prop 22) violated the state’s constitution, overturning it and potentially putting a portion of the state’s gig work industry in peril. The controversial California ballot measure designated app-based gig workers like rideshare and food delivery drivers as independent contractors, meaning that the companies they ostensibly work for would not have to provide a minimum wage, health insurance, unemployment, sick leave or other benefits. Because the initiative was a ballot measure, the court found the law restricted the state legislature’s ability to regulate compensation rules, and said the measure also illegally prevented workers from collective bargaining and unionization. However, this ruling does not mean that gig workers will automatically be considered employees, as no previous law mandated that classification.

Before Prop 22’s passage in November 2020, California passed AB 5 in May 2019, which instituted a more rigorous test to determine whether workers were employees or independent contractors: if “the person is free from the control and direction of the hiring entity in connection with the performance of the work,” the work was outside the company’s usual business, and if the worker “customarily engaged in an independently established trade, occupation or business of the same nature as that involved in the work performed.”

Rideshare companies like Uber and Lyft essentially ignored AB 5 and poured $224 million into fighting for Prop 22, making it “the most expensive ballot measure in California history,” according to the Los Angeles Times. The measure passed with around 59% of the vote.

In a small concession for workers, Prop 22 did provide for a health insurance stipend, but an August 2021 UC Berkeley Labor Center survey of 500 drivers showed that only around 10% of workers were receiving it, and 40% had not heard about it at all. Since work hours are only defined by the time spent driving with a passenger, others do not work the required 15 hours per week on one app to qualify for the stipend. These and other factors prompted drivers and the Service Employees International Union (SEIU) to sue the state seeking to overturn the law.

For now, the Superior Court ruling will likely not change much for gig workers in California, as Uber and other companies have announced their intention to challenge it in higher courts and may ignore any of its other legal implications, leaving everyone involved with a shaky status quo: an overturned law that is effectively still being followed.

As Risk Management wrote in May, one danger of the continuing ambiguity surrounding gig worker classification is misclassifying workers, which can lead to heavy fines or lawsuits. For example, in January 2020, D.C.-based contractor Power Design Inc. agreed to pay $2.5 million for misclassifying 500 workers as independent contractors rather than employees. In August, food delivery app company Postmates settled with the city of Seattle for nearly $1 million for violating the city’s Gig Worker Paid Sick and Safe Time (PSST) ordinance. The payment will go to cover city fines and compensate more than 1,600 workers for back wages. Additionally, withholding benefits, overtime, and meal and rest breaks (whether a result of misclassification, or in general) can result in workers filing class action lawsuits against the company, potentially resulting in significant costs, impacting productivity and damaging the organization’s reputation.

Another risk for gig work companies is insufficient safety measures for workers. Unlike with formal employees, companies often do not provide gig workers with safety training and may not offer formal ways to report safety concerns. This creates an environment where workers who are often under pressure to complete as many rides or tasks as quickly as possible may get into accidents or leave dangers unreported, creating liabilities for themselves and the company.

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Other states have their own gig work regulations either on the books or in the works and President Joe Biden has expressed support for gig worker classification as employees, but there is currently no national legislation on this issue. However, in March, the House of Representatives passed the Protect the Right to Organize Act (or PRO Act), which would reclassify gig workers as employees, affording them all the benefits included in that status.

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The Senate has not yet taken up the measure.