Current supply chain strategies inadequate: Marsh & McLennan’s Glaser

Supply chain risk, analytics, expansion among topics at Marsh roundtable

Marsh & McLennan president and COO Daniel Glaser illustrating the universe of known and unknown risks during a roundtable discussion at the 2011 RIMS Conference in Vancouver, BC.

The aftermath of the earthquake and tsunami in Japan has underlined the need to develop new insurance products and strategies to deal with supply chain disruption, says the new COO of Marsh & McLennan Companies.

Daniel S. Glaser, who was appointed group president of Marsh & McLennan in a major shakeup of senior management in April, made the observation during an intimate roundtable discussion with journalists and senior executives of Marsh & McLennan operating divisions on May 2 at the RIMS conference in Vancouver, BC. Some of the other roundtable participants included Peter Zaffino, who was recently appointed president and CEO of the global brokerage Marsh Inc., Alexander Moczarski, who is the new CEO of reinsurance brokerage Guy Carpenter, and Australian David Bidmead, who is the first CEO of Marsh’s US division born outside the United States.

The current reliance on contingent business interruption (CBI) products is inadequate to deal with the kinds of large and complex supply chain disruption created by events like the Sendai earthquake, said Glaser.

“Most CBI coverages are heavily sub-limited and they’re generally for direct suppliers that suffered physical damage,” he explained. “Often times supply chains are disrupted with non-physical loss, and often times it’s suppliers of suppliers” that are affected and therefore fall outside policy coverage.

One of the realities of globalization is that it has become more difficult to mitigate losses due to supply chain disruption, said Glaser. Because large publicly traded companies often need to vet suppliers for issues like adherence to certain labour and environmental standards, it is much more difficult to make a sudden switch.

“We’ve created products literally over the last three years that have largely sat on the shelf because of the notion of, ‘Well, my property and BI covers most of it.’ We believe that that is going to be one of the big growth areas in the insurance business is around newly created supply chain products.”

Demand for analytics

Another topic of discussion at the roundtable was the increasing use of analytics to support the recommendations Marsh makes to clients.

“In the past, risk managers would use their experience, their time in the industry their reliance on insurance brokers to make calls,” said David Bidmead. “They’re still doing that, but now they’re saying we want you to demonstrate the efficacy of those decisions by the use of analytics. Prove to us that those retention levels and levels of transfer based on detailed scenario analysis stand up to independent scrutiny so when we present to our boards, particularly boards of publicly held companies, that they can withstand a review by someone independent of the process.”

Alexander Moczarski added that this rapid evolution is being driven by the increased importance of risk managers and chief risk officers, who are becoming more involved with boards and their risk committees.

“That’s being driven partly by corporate governance and demands from all the stakeholders to better understand risk,” as well as the need to at least identify a wider range of possible risks, he said. “You can’t look for every unknown unknown. So you basically need to do the best you can and at least have a plan…Even a plan that is generic is better than no plan,” said Moczarski.

Expansion plans

Glaser also touched on the company’s plans to expand the Marsh & McLennan Agency (MMA), including into Canada. MMA was set up in 2009 to target the insurance needs of middle market business and smaller companies. The division has grown rapidly through the acquisition of some significant, privately-held, regional brokerages throughout the US, but does not currently have a footprint in Canada.

“Our view in the agency strategy is that the Marsh & McLennan Agency has its own culture, and that culture is a combination of what Marsh is and what the agencies’ typically represent,” said Glaser. “It’s a tremendous attraction to owners of agencies that they can get the Marsh brand and be a part of building a large agency force,” he added, explaining that the goal is to keep the culture and leadership of the brokerages MMA acquires intact. “We want leaders that want to continue to grow their business” rather than just cash out, added Joe McSweeny, president of Marsh’s US and Canada division.

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