Archive for January, 2010

The Broomball Coefficient of Anticipation

January 18, 2010

I graduated with my BS in Business from Lake Superior State University in Sault Ste. Marie, MI.  Located in the north-eastern most corner of Michigan’s Upper Peninsula, it is a place of serious winter and unless you figure out things to do when it’s cold out you will never venture far from your dorm for months at a time.  The history of broomball is sketchy, but it is enough to say that it is one of those ideas that creative folks in cold places hatch to have fun in an otherwise hostile environment.

Broomball is played on the ice and has goals similar to hockey.  The players wear tennis shoes and use what looks like a corn broom cut off at the stitches to direct a small ball into the goal.  The action is much like hockey with one notable exception.  Tennis shoes don’t get any traction on ice.  That lack of precision in movement contributes to a need for planning plays that goes beyond anything in hockey.  Beside the typical dynamics at play in any sport, now you have the reduced ability to execute precisely.  You must introduce a “factor” into each play that actually causes you to execute before the precise moment you would normally execute the play because the ice is slippery.  In order to figure out just how much anticipation is needed you spend a lot of time on your butt or sliding past the goal or shooting and missing altogether.

Sounds like the real world doesn’t it!

When you are planning risk transfer and risk financing mechanisms there are numerous financial, actuarial and catastrophic loss models that can help you to make sound decisions; but at the end of the day there is a lot which cannot be completely controlled.  I call this the “Broomball Coefficient of Anticipation”.

The reason why insurance is a prime example of this coefficient in action is that its modeling is almost exclusively retrospective.  Insurers price off of historic loss histories, expectations of future catastrophic loss are based on where they have happened in the past, essentially navigating forward by looking in the rear view mirror.  Don’t get me wrong, since none of us have crystal balls to predict the future we have to have something to hang out hats on and, at least statistically, the past has been a pretty good indication of future events.

If we were operating in an environment where we had the sure footing of a manicured baseball diamond or the turf of a football stadium or the pitch of a soccer field we could execute our plays instantaneously and with precision.  But in insurance we are playing on ice in our sneakers.  One of the tenets of the “Broomball Coefficient of Anticipation” is that if you wait until all the scientific loss models show its time to execute, it’s already too late.  That’s why you see the insurance industry as a whole constantly being reactive instead of proactive with just a few exceptions.

Of all the segments of the insurance industry, alternative risk is the most likely candidate to take the Broomball Coefficient and use it to best effect.  Captive insurance companies are the most efficiently capitalized, agile and responsive insurance mechanisms in the industry.  Because they are responsible for serving the needs of a single client or a very small clientele they can quickly execute on initiatives to meet strategic goals and can often do so in anticipation of need as opposed to in response to a need.

The only thing lacking to most captive insurers is a partner that knows how to execute while running full speed on ice in sneakers.

Email me at dennis.silvia@cedarconsulting.net if you would like to discuss this more.

Education is Key to Execution

January 8, 2010

Education is the key to being able to effectively implement and execute a sophisticated risk management regime like a captive insurance program.  This doesn’t only apply to the accounting and insurance professionals that are involved in the day-to-day operations of these types of programs.   It also applies to the risk managers who represent companies that own them and to insurance producers that help to set them up.

There are several venues to learn about captives and how they are used.  The International Center for Captive Insurance Education (ICCIE) provides an online platform of coursework that leads to the Associate in Captive Insurance (ACI) designation.  I am on the faculty for this program and it is an excellent course of study for accounting, insurance and business professionals to get a solid foundation of captive insurance concepts.  You can find more information at http://www.iccie.org/

Several associations provide annual conference opportunities that are full of great educational content.  The Vermont Captive Insurance Association, the Bermuda Captive Conference and the Cayman Captive Conference are all venue-oriented educational experiences and are excellent for delivering timely information on emerging industry issues.

For more general insurance and underwriting educational topics there are several continuing education websites that can provide the ongoing training needed to maintain licenses and credentials.  I sponsor one of these websites at http://cedarconsulting.360training.com

Finally, industry service providers organize conferences that have client education as their primary purpose.  USA Risk Group (www.usarisk.com), the largest independent captive services company, sponsors an annual educational conference for captive industry participants.  This type of conference is typically more focused on the practical nuts and bolts issues of captive insurance and the smaller group results in better access to speakers and service providers.   The conference is highly rated by participants.  This year’s conference will be held in Charlotte, NC at the Ballantyne Resort, May 26th-27th, 2010.  You can contact me by email at dennis.silvia@cedarconsulting.net for specifics on registration for this event.

Education in and of itself is worthless.  It’s not in the knowing, but rather in the application of the knowledge that yields results.  These educational opportunities will give you what you need not only to understand the concepts of captive insurance but to apply them to your circumstances.

Execution is always the factor that divides the successful and the wannabe.  Gain the knowledge you need but don’t forget to deploy that knowledge in a meaningful way to solve risk related problems for your organization.