Risk Managers Clam Up When Media Call

Legal hurdles on interviews one of many new challenges buyers say they face

Many risk managers at public companies are running scared these days when it comes to talking with the press, thanks to gag orders imposed by their public relations and legal departments.

Indeed, risk managers queried for this article about how their jobs have changed over the past couple of years cited the many new procedural hurdles they have to clear before granting a reporter the right to quote them by name.

Some said they must have a public relations department official on the phone during a press interview to monitor the conversation with the understanding that any comment potentially considered objectionable could be struck from the record. Others said a reporter would have to submit quotes from an interview in advance of publication to the company's legal department, which reserves the right to edit or delete any comments they choose.

Most agreed to speak to National Underwriter and be quoted for this story without any such restrictions as long as their names and company affiliation was kept a secret, and they were identified only by their industry and general location.

“Only select people are allowed to speak for the company. For everyone else, we must see a transcript and vet it before publication,” said a risk manager at an energy company who only agreed to be interviewed if the type of energy his firm deals with and where the company is located was withheld. “I'm happy to talk to the press, but you'd have to submit the comments of mine you intend to publish beforehand for vetting by my public affairs department,” he explained.

Many blamed the corporate paranoia on heightened scrutiny of public pronouncements since passage of the Sarbanes-Oxley Act in 2002.

“Sarbanes-Oxley could be a factor,” acknowledged the energy company's risk manager, although he noted that his firm's press policy predates the new law. “Any material information about a public company must be released to everyone at the same time. That's why our investor relations meetings are now Web cast, so that anyone can listen in.”

The law in question formally known as the Public Company Accounting Reform and Investor Protection Act of 2002, co-sponsored by Sen. Paul Sarbanes, D-Md., and Rep. Michael Oxley, R-Ohio has been one of the biggest headaches to come along in quite some time, risk managers say.

The law's main intent was to clean up corporate governance after various accounting and financial reporting debacles, such as Enron's meltdown. But for risk managers, the law means there are new exposures to account for, including employment practices liabilities involving harassment of whistleblowers, as well as additional risks facing directors and officers who must certify the accuracy of financial reports.

“Sarbanes-Oxley has put a spotlight on what we do,” said a vice president of risk and insurance services at a chemical company. “We're involved in exposure control on a peripheral basis. There is a person in the legal department who is responsible for how much information goes out and how, but we work with her to assess and contain that risk.”

The energy company risk manager said that since passage of Sarbanes-Oxley, he must sign off on the “accuracy and appropriateness” of anything published about his department that could materially affect the company's financial statements. “We look at every footnote involved with any risk management-related issue,” he noted. “In this era of transparency, a person can go to jail, and I have no intention of going to jail.”

Beyond corporate governance, most of those queried said their most difficult struggle has been finding reasonably priced coverage in what is still a seller's market. Indeed, soaring premiums have raised the profile of risk managers for better and for worse.

“We're getting higher-level scrutiny from senior management,” according to the director of risk management for a national restaurant chain, “not just because insurance premiums have been going up so high and so fast, but because we're taking a lot higher self-insured deductibles on workers? compensation,” which he described as a critical line “because we are such a labor-driven business.”

A risk manager at a food manufacturing firm said insurers have changed the way they do business. “We have been used to a soft market for so long, it has been difficult to adjust to the changes in how claims are handled, the increased coverage disputes, collateral issues, etc.”

The market has “put us in a bind and changed our way of thinking,” said a chemical company risk manager. “We used to have an integrated [insurance] program,” incorporating a number of exposures in a single policy, but in the hard market, “the pricing just made no sense after awhile. It combined property and general liability, but the limits became too restrictive and the cost for coverage too out of line. We've gone back to monoline policies.”

“It?s been a bumpy ride lately,” agreed the risk and insurance manager at a fan and lighting company. “There are lots of things going on at once.” She said she is already working on renewals coming due July 1?both for commercial coverages and the firm's health plan. While the commercial insurance market is “moderating,” she noted, “we are still getting some pretty high quotes on renewals.”

Beyond buying insurance, however, risk managers interviewed say they are wearing many additional hats, often supervising employee benefits, captives, corporate security, human resources and even real estate operations.

Indeed, when asked how his job had grown over the last few years, the vice president of risk management for a food manufacturer said in an e-mail interview: “Wow! Do you have enough time?”

Noting that his firm has seen exponential growth since its risk management department was launched in 1999, he said “we have continually added responsibilities, such as contract and legal review, Sarbanes-Oxley committee oversight, employee complaint hotline initial contact and review, and other areas that affect the company. I am involved in almost every area of the company from business transactions to contract negotiations.”

A risk manager for an Eastern supermarket chain said she has taken on a “much more expansive role” by moving into employee benefits, enterprise risk management and auditing.

Her counterpart at a Midwest food retailing firm said that besides handling commercial insurance, “I also serve as real estate manager, negotiating leases for new and existing locations, as well as human resources manager. It?s eclectic and hectic.”

The risk and insurance manager for the lighting and fan manufacturer, who also handles benefits for her firm, complained that a lot more clerical work is being delegated by insurance carriers to the buyer. “For our health insurer, for example, we have to key in data from here like when new employees start that the insurer used to handle themselves,” she said.

The risk manager of the energy company said that one of the biggest changes in his job description is his expansion into enterprise risk management. “We look at all risks facing the company both pure risks, such as fire, windstorm and the like, as well as speculative risks, including interest rate fluctuations and how they impact your debt, currency fluctuations, and even reputation risks, which are critical for a public company,” he said.

A similar trend was cited by the risk manager for the food manufacturer, who noted during his e-mail interview that “today we are more involved in the business decisions of the company and thus find ourselves handling multiple projects and requests concurrently. There are a lot of inputs and a great need to respond to our business units quickly and with good information and adviceI am asked to evaluate the business aspect of a transaction not only from a risk perspective, but from the viewpoint of 'does it make good business sense?'”

“In a few words,” he concluded in his e-mail, “we have grown a lot!”

Many Risk Managers Wear Multiple Hats

By Sam Friedman

Risk managers are definitely more than just insurance buyers, with those at smaller firms more likely to be a jack-of-all-trades than their counterparts at jumbo companies, an industry compensation study confirmed.

The “2003 Risk Management Compensation Survey,” conducted by Logic Associates and co-sponsored by National Underwriter, found that a significant percentage of risk managers even among those at larger companies are often involved in more than just insurance purchasing and loss control.

For example, benefits management is a big part of the job for many risk managers, particularly at smaller firms.

Indeed, 80 percent of respondents at firms with less than $200 million in annual sales volume have “direct, hands-on management or supervisory responsibility” for the placement of a benefit plan, while 76 percent in that category administer the plans. At firms with sales revenue between $201 million and $500 million, the figures are 75 percent on placement, and 55 percent on administration.

From there, the percentages drop for the most part as company size increases, with benefits duties likely delegated to a human resources department or full-time benefits manager. However, even at firms with more than $15 billion in sales volume, one-quarter of risk managers said they were managing benefits placement and administration.

As for captive use, the percentage of respondents who manage alternative market facilities stayed about the same for most company-size categories. (The only major growth came among those at firms with less than $200 million in sales volume rising from 8 percent to 11 percent of those surveyed).

However, the average number of captives managed by those with such facilities rose for all but the two highest sales revenue categories (which maintained their two-facility benchmark), indicating that the hard insurance market drove most firms already in the alternative risk-transfer market to increase their captive commitment.

As for security, again, with some exceptions, the smaller the firm, the more likely a risk manager is to be hands-on when it comes to safety and fire engineering, corporate security and data security. But even at the biggest companies, a significant number of risk managers have direct security responsibilities.

Reproduced from National Underwriter Edition, April 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Risk Managers Clam Up When Media Call

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