Employees’ Mental Health Should Not be Overlooked

Posted by on May 12, 2015 | Be the First to Comment

Mental Health
Risk managers need to assess where responsibility for managing mental health risk sits and to focus on evidence-based, decision-making to improve outcomes for employer and employee alike

Employee risk is now firmly on the agenda for corporates and multinationals. The well-worn mantra that people are a firm’s greatest asset has matured into a recognition that human capital assets require just as much care and attention – if not more – from a risk management point of view as any other key business asset.

The downside risks of getting it wrong are clear. It is no coincidence that employee risk strategies are being put at the centre of leading organisations’ approach to people management just as mental health becomes the issue of the day for many boards. The mental health debate is accelerating fast, evidenced by the language we are starting to use to discuss the challenges. For example, “cancer” as a generic term is becoming outdated; we understand that there are different cancers with different impacts, outcomes and treatments. The language of mental health is also changing; we talk about stress, anxiety, depression, depersonalisation as different conditions, requiring different approaches and solutions.

According to the OECD Policy Framework published in March 2015, at any given moment, some 20 percent of the working age population suffers from a mental illness, and 50 percent of workers will suffer a period of poor mental health during their lifetime. If labour markets are to function well, it is therefore important that policymakers address the interplay between mental health and work[i].

Reporting and Screening

Our research suggests large companies are finding it difficult to deliver against the mental health agenda when it comes to reporting and screening. For instance, analysis of the public filings and websites of the FTSE 100 which we conducted recently uncovered that 88 percent of the FTSE 100 did not report on their 2014 mental health statistics. Only four FTSE 100 companies (GlaxoSmithKline, Reed Elsevier, Royal Mail and WPP) met the criteria for all of the aspects covered in the Lockton analysis, which ranged from having employee wellbeing programmes in place through to acknowledging mental health issues in their workforce and specifically reporting mental health stats.

Figure 1: FTSE 100 Mental Health Programmes and Reporting (2014)
EmployeeMentalHealth-LON-LMU Blog1

EmployeeMentalHealth-LON-LMU Blog2

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While 89 percent of the FTSE 100 now report on employee wellbeing generally, 47 percent have employee assistance programmes, and 31 percent have health and wellness screening programmes in place. When it comes to mental health more specifically, only 42 percent of the FTSE 100 acknowledges mental health as an issue, only 30 percent reported they have programmes specifically targeted at mental health in their workforce, and only 12 percent reported the volume of mental health cases in their workforce in 2014.

This is despite the fact that just over two-fifths of organisations have noticed an increase in reported mental health problems among employees in the past 12 months, with larger organisations particularly likely to report an increase, according to the Chartered Institute of Personnel and Development[ii].

Careful planning and ongoing vigilance – and then reporting and measuring progress and success – is therefore vital. Employees need to know exactly where to go and who to contact if they experience mental health challenges while in post. They also need the security of knowing that mental health will be treated exactly as what it is – an illness – and given the proper support, treatment and confidence to return to work when fit to do so. Mental health must not be stigmatised or downplayed; if the fear factor is there, employees will not feel able to speak out and the problems are likely to increase.

Risk managers need to be up-to-date with the latest thinking and skills in order to identify and mitigate mental health risk within the business. The Government’s Fit For Work guidance, plus the changes to the Mental Health Act are the “big two” but there are other, more granular regulatory and best practice changes underway which should also be assessed. Closely working with HR, line managers, and senior decision-makers can ensure the company’s approach to mental health risk is transparent, consistent and compliant is key.


Organisations need help to approach mental illness effectively in terms of prevention, identification and intervention. They need a methodology which draws on various disparate data sources to accurately assess the mental health impact on their business. We find that an initial “deep dive” data-gathering exercise, coupled with additional external insight and benchmarking, enables an organisation to deal with this highly complex and sensitive area with greater confidence and focus.

Our industry is guilty of overuse of technical jargon and labeling of services; if someone is ill, they just want to get better. Whether support is sourced from an employee assistance programme, a private medical insurance scheme, a group income protection cover, or any other service the patient simply needs better signposting and an ease of navigation to access help. At the same time, the employer wants to meet their contractual and moral obligations in the most cost-effective way possible and expedite an employee’s return to health and therefore, productivity.

Risk managers need to asses where responsibility for managing mental health risk sits, and to focus on evidence-based decision-making to ensure good governance. Risk managers can become the catalyst for change when it comes to corporates’ approach to dealing with mental health issues and improve outcomes for employer and employee alike in doing so.

[i] OECD Policy Framework, 4 March 2015, p3
[ii] Absence Management, CIPD Annual Survey Report 2014, p6
This article first appeared in Insurance Day [insuranceday.com], as part of a special feature on Talent Management, 11 May 2015, and has been reproduced with the publisher’s permission. 

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Making the Most of China

Posted by on May 5, 2015 | Be the First to Comment

Shanghai, China.

Realizing the potential of the Chinese insurance market is not about offering more products, argues Lockton Asia’s head of Greater China Alex Yip. It is about demonstrating the actual risks businesses face in the wider China context.

There are numerous articles, reports and thought-leadership pieces on the great potential of the Asian insurance market. Typically, China and Indonesia appear at the top of people’s wish lists with their temptations of economic growth, growth potential and demographics. These are undeniable attractions to the insurance industry that is itself built around numbers, statistics, risk and rewards.

So, while there is undoubtedly opportunity, this is old news. In a market the size of China and Hong Kong there has always been opportunity. As a sector, insurance companies need to start talking about how to realize this potential because the things holding us back are industry issues, not those of individual companies and products. Companies that can differentiate themselves by adding real value to their clients’ businesses will have much to gain.

In China, a number of key factors are driving the development of the local insurance market. The most significant include:

  • The maturing of the local economy from rapid growth to sustained development
  • The rapid increase of competition in the Chinese insurance market
  • The impact of digital technology on consumer purchasing

Regulation will play an increasingly important role, though this is likely to be as a reaction to the way the industry develops.

In this context, insurance consumers – both businesses and individuals – are confronted with:

  • The increased commoditization of products
  • Declining service as a result of smaller margins
  • A confused offering of insurance solutions that do not actually cover the greatest threats to their business

Cyber insurance and reputation protection spring to mind as two areas of typical under-cover.

Increased Competition

The insurance sector in China has seen a boom in new market entrants as both foreign and domestic capital looks for a home. The market’s growth potential and solid returns through regular premiums have proven to be attractive investment. However, this increase in competition has both an upside and a downside for commercial and retail clients.

New entrants see potential in business volume, which leads to increased competition, commoditized products and reduced costs. For good companies – both brokers and insurers – this opens up opportunities for differentiation through quality offerings, but only if we are able to distinguish ourselves from the ‘sub-prime’ products and operators. However, sensible advice tends not to grab headlines. And this is a problem.

The insurance sector is not exactly well known for its ability to communicate to the wider commercial market. But if we are to realize the potential of the ‘value-added’ market, we need to get better at articulating the value we add to the domestic market. This is true for both foreign companies looking to enter China, and Chinese companies looking for expansion outside of China.

Realizing the potential of the Chinese market, therefore, may not be about more products. It might be more about demonstrating the actual risks certain businesses face in the wider China context. Risks such as political, cyber, D&O liabilities, supply chain risk, crisis response and reputation management are now equally as important as property, health and medical, and motor coverage.

To realize the (well-researched) potential of the China and Hong Kong insurance market, the best operators need to talk about the real risks businesses face. For a food producer or distributor, supply chain risk coverage is vital; for a business advisor, reputational management; for importers and retailers, trade disputes can be crippling.

Often businesses will spend more time worrying about their motor vehicle insurance or expat health coverage than about the risks which could cost tens of millions in damages and share value. It is here that the real value of insurance to Chinese companies can be realized, and the top players in the market need to start explaining this publicly and more clearly.

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Broker-Dealers and Investment Advisors Under the Regulatory Microscope

Posted by on April 28, 2015 | Be the First to Comment

I don’t think I’m overstating the status quo by much when I say that regulators are focused on the cyber security practices of every regulated business. This is particularly true for securities broker-dealers and investment advisors.

Last year, the U.S. Securities and Exchange Commission (SEC) Office of Compliance Inspections and Examinations (OCIE) announced that it would be auditing broker-dealers and investment advisors to assess their cyber risks and preparedness. The audits focused on practices relating to:

  • Identification of cyber risks;
  • Cyber security governance;
  • Protection of networks and information;
  • Remote access to client information and funds transfer requests;
  • Vendor risks; and
  • Detection of unauthorized activity

In February 2015, the OCIE released a risk alert summarizing the results of its audits of 57 registered broker-dealers and 49 registered investment advisors. The alert contains a breakdown of the sizes and types of firms examined. A few of the highlights are:

1. The vast majority of broker-dealers and investment advisors have written information security policies.
Although fewer firms audit compliance, 93 percent of broker-dealers and 83 percent of investment advisors now have written policies.

I expect the lack of audits to be a focus of the SEC and other regulators going forward. Regulators frequently stress the need for companies to have a “culture of compliance” with applicable information security rules and best practices. Companies that don’t audit for compliance are likely to have a lot of trouble satisfying their regulators.

2. Cyber risk assessments are common, but vendor assessments are less so.
Significant majorities of broker-dealers and advisors assess their cyber risks. Smaller numbers assess their vendors, with only 32 percent of advisors doing so. The OCIE also found that even smaller percentages of firms incorporate cyber security requirements into vendor contracts. Cyber security training of vendors is performed by only 51 percent of broker-dealers and just 13 percent of advisors have policies requiring it.

3. Most companies have experienced cyber attacks.
Cyber attacks appear to be common. Eighty-eight percent of broker-dealers and 74 percent of investment advisors have been attacked directly or through a vendor. The most frequent attack vectors are malware and fraudulent emails.

A typical fraudulent email is one directing the transfer of client funds. Twenty-five percent of the fraudulent email losses could have been prevented because they were caused by employee failures to follow identity authentication procedures.

I suspect regulators will focus on the relatively high incidence of employee failures going forward. I believe regulators are likely to examine a company’s ongoing training and testing of employees to assure that they are following required procedures. This would be consistent with the growing realization that cyber security is a human issue more than a technological one.

4. Cyber insurance is not as common as it should be.
A slim majority of broker-dealers (58 percent) have cyber policies. Only 21 percent of investment advisors have coverage. The existence of cyber insurance is one of the factors the SEC noted in its 2011 disclosure guidance relating to cyber security. That emphasis could lead the SEC to view the absence of coverage negatively.

The SEC isn’t the only regulator to have spoken recently about broker-dealer cyber risks. In February 2015, the Financial Industry Regulatory Authority (FINRA) issued its Report on Cybersecurity Practices. The report advocates a risk-based approach to cyber security, and identifies principles and effective practices for firms to follow. Some of the key points the report makes are:

  • A strong information governance framework, actively backed by the company’s senior leadership, is essential
  • Cyber risk assessments are vital
  • Necessary technical controls will vary depending on the company’s business
  • Incident response plans are essential and should be tested regularly
  • Companies must use due diligence to assure that vendors provide necessary cyber security
  • Employee training is extremely important
  • Companies should actively engage in information sharing activities with other broker-dealers
  • Cyber insurance should be considered

None of these points are surprising. They are consistent with the best practices followed by most companies. FINRA does state that it expects companies to consider the matters raised in the report, and that it will assess companies in that regard.

Broker-dealers should carefully review and consider the FINRA report.​


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How Soft Can the Medical Professional Liability Market Get?

Posted by on April 14, 2015 | Be the First to Comment

To the dismay of underwriters, there has not been a hard market in the medical professional liability (MPL) arena in more than a decade. Rates continue to decline across all healthcare subsectors and capacity has grown substantially as new players have entered the market. Underwriters are accepting what appears to be a permanent, competitive landscape. Within the healthcare industry, changes have fundamentally impacted the insurance cycle as carriers are now looking for new strategies in order to succeed.

The main reason for the continuing soft market: The ratio of supply to demand has never been greater. New carrier entrants to both the primary and excess marketplace, as well as the supply of ample reinsurance, offer buyers more options than ever. Overlay the tremendous consolidation among healthcare organizations and the trend toward the employment of physicians who had once been separately insured, and these forces have led to more carriers fighting over a shrinking customer base. As a result, pricing naturally declines in this macro-economic environment.

What have carriers been doing to succeed in the soft market? Insurers have differentiated themselves by tacking on additional coverages and sublimits to their standard professional and general liability policies. These coverages can include crisis response & public relations costs, evacuation expenses, and reimbursement for government regulatory actions.

These “freebies” are attractive to insureds and can tip the scale when clients make decisions on where to place their coverage. Also, many carriers are focusing on niche classes (e.g., home health, outpatient facilities, etc.) within the healthcare industry segment, hoping their deep analyses into these areas will support their new pricing models and product offerings.

Overall, the risk profile of the healthcare industry looks bright. The implementation of advanced technologies in clinical settings, innovative risk management initiatives, and creative claim mitigation strategies has dramatically improved results. Loss experience remains favorable with an industry combined ratio for MPL that has remained in the low 90s. In short, it’s a rosy forecast for buyers!

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The True Cost of Product Recall

Posted by and on April 2, 2015 | Be the First to Comment

Product Recall

Marketing product recall insurance has now moved from agreeing the concept of cover (‘Why should I buy this?’), to cost of coverage (‘What value do I get from this?’), to the final stages of clarity (‘Will the cover perform?’) and claims (‘Will all my financial losses be reimbursed?’).

Despite that, many buyers of product recall insurance – and brokers who have not handled a lot of product recall cases – concentrate on the trigger. They put a tremendous amount of effort into writing detailed definitions around what might cause products to be recalled and define the likely costs they will incur in the moment of crisis.

When a product is withdrawn, the immediate costs are usually very easy to anticipate:

  • Bringing together the crisis team
  • Removing the product from the market
  • Investigating the cause
  • Managing public relations

However, we estimate that 80 percent of the total financial losses are incurred long after the offending products have been discarded. As well as being long-term, these costs are also very difficult to define. For example, how can you prove why customers still don’t buy the product a year later?

A forensic accountant can relate the policy language to resultant loss of profit. This can yield significant extra value beyond the immediate increased costs of working.

The importance of claims handling

Clearly, claims handling is the true shop window of any sophisticated coverage and is how a specialist claims team creates ultimate value for clients.

Claims are complex and it takes time – often more than a year – to understand the full extent of losses. The trigger needs to be identified correctly as well as the complexity of losses that mount up after the event.

Three key items to help prepare you in advance include:

  1. Anticipate what a loss adjuster would want to know, take advice, and rehearse your reporting.
  2. Simulate a recall to gauge your company’s readiness to handle communication.
  3. Identify your key people – lawyers, public relations professionals, recall specialists – who would have a role to play if
    one of your products was recalled. Your insurer may pay for these advisors.

Familiar Scenarios
Here are examples of issues our team has worked on, which illustrate the most common losses:*

1. Raw product goes up in value
When a raw meat supplier had to recall its products, it sourced them from elsewhere so it wouldn’t breach obligations to the customer it was supplying. The spot price of those meat products was five times higher, and our client successfully claimed for the difference in those costs.

2. Rejected stock used for another purpose, selling for less
A fresh produce supplier turned its product into animal feed (which sold at a much lower price) after a small amount was found to be contaminated with salmonella. The insurers covered the full difference in value.

3. Despite a small problem, a big amount has to be discarded
Weevils were found in large sacks of rice, so the entire lot was thrown away to maintain the brand’s reputation. Even though only a small amount of the stock had been infected with the weevils, the insurers paid for the full loss of stock to maintain the brand’s reputation.

4. Supplier forced to reimburse customer’s total losses, including abandoned marketing campaign
A large fast-food restaurant chain had created a marketing campaign around a special ingredient. When that ingredient suddenly had to be recalled (and the campaign abandoned), the company demanded full reimbursement of the campaign costs. We argued successfully to the insurer that their short-term loss would be in the client’s long-term interest: This was a sensible strategy to keep in place its contract with an important customer.

5. Loss caused by physical damage to property
Rain fell through a hole in a warehouse roof and spoiled a consignment of cheese. The property insurer quickly paid for the roof to be repaired, but we led lengthy negotiations between all the insurers over consequential losses (such as the loss of the cheese). We reached a satisfactory compromise.

6. Produce mislabeled and has to be repackaged
A product contained peanuts, but this was not mentioned on the original labeling. The insurer covered the cost of re-labeling the full consignment.

7. Loss caused by damaged packaging, usually supplied by a different company.
Faulty lamination meant chip packets were not sealed properly, allowing air into the product, which would have made the chips go stale. The chip company successfully argued that the packaging supplier should cover the costs of the full recall and replacement of the damaged products.

8. Small component causes large losses in a complex supply chain.
A relatively small component ($2 each) in a car’s catalytic converter was faulty. The car company successfully argued for compensation to cover the full cost of recalling all new cars and replacing the full exhaust system on each one ($100 each).


Your contacts at Lockton:

Ian Harrison leads Lockton’s team of product recall specialists, based in London. Together, they place around US$20 million into global markets each year. They also work with our claims specialists, to negotiate payments to clients that have suffered loss through product recall. These matters are normally very complex, and require careful liaison with insurers. Adrian Parker specialises in claims. In the last 12 months, Lockton’s specialist claims team has secured product recall claims valued more than US$60 million.

Ian Harrison, Partner | Tel: +44 20 7933 2297 | ian.harrison@uk.lockton.com

Adrian Parker, Assistant Vice President | Tel: +44 20 7933 2202 | adrian.parker@uk.lockton.com


*To protect client confidentiality, we have removed the names of the companies.

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