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November 8, 2020

Innovation Comes to Risk Engineering

Summary:

"From now on, nothing in risk engineering will ever be constant BUT change. If you can’t get used to constant change, you'd better leave.”

Photo Courtesy of Pexels

Ralph Tiede is married with four children and hails from Boston. Prior to retiring in October 2019, he spent 40 years in risk engineering within commercial property insurance. We asked him to describe his career and the industry changes he has experienced, first-hand. Here is what he had to say:

Tell me about your family and your career trajectory. 

I attended State University of New York, and my first job out of school was working for the State Health Department in NYC. I was an environmental engineer inspecting medical facilities and performed field surveys on hospitals and long-term care homes.

A company back then called Improved Risk Mutual (IRM), had a fire protection training program. I didn’t know anything about insurance at the time. The starting salary was $10,500, but I had a company car, which was pretty great. I went to train there and did three weeks of intensive training lab in White Plains, NY. I shadowed experienced engineers and then went back and did three more weeks of intensive training before getting my first assignments. From then on, we were on our own. IRM had approximately 100 field engineers and a total of about 200 employees. All the field engineers worked from home before virtual or remote work was a thing. There were no computers back then or cell phones — only “snail” mail. They gave me a manual typewriter and a package of carbon paper, and I moved to Buffalo to begin work. 

Can you describe for me, some of the technological and industry changes that took place?

Yes. From there, I went to work for Wausau Insurance. At this point, we were still using typewriters. I made a smart choice because I invested in a $100 Smith Corona electric typewriter to gain a competitive edge. It had an automatic erase feature that worked much faster than whiteout. It was probably one of the reasons I got promoted!

Around this time, electronic mail had begun making its way into the insurance industry. Sysm was the monitor we used, but I wouldn’t call it a computer. It had a screen and a keyboard to send emails, which was groundbreaking! I could get assignments sent to me from Philadelphia and other places in real time rather than in the mail, which saved days! Still, I couldn’t type up reports on it. The other drawback was that, from then on, we needed to track our time electronically vs. manually, which no one liked. 

Eventually, I became the manager for the Northeast territory from Maine down to Florida. I was managing seven or eight engineers. We were still writing reports ourselves or dictating them to one of the 20 young ladies who worked in the steno pool and typed the reports for us. In the late ’80s, the computer was introduced. That’s when corporate began expecting us to begin typing reports on the computer. The older engineers fought back because they weren’t used to the technology or typing up their own reports. Many engineers retired at that time because they didn’t want to learn how to type. 

Corporate explained its rationale for using the computers to the engineers. “Now you only have to type up a report once,” they said, “so when you return to your client’s plant in a year’s time, you still have the report you saved on your computer from a year ago. That means you only need to update the document rather than re-type it during an account review.”

So, would you describe the introduction of computers as the first digital transformation you witnessed in your field?

Yes. After 50 years of insurance being stagnant as an industry, the guidelines for underwriting began to change almost annually. New hazards and concerns would come into play, new types of plastics had been developed and new buildings requiring more storage required us to rewrite the reports every year. The result was that the introduction of computers didn’t really save us time! 

As you know with Orbiseed’s customer discovery research, risk engineers are still trying to reduce the time spent reading and writing reports. We’ve had this problem since the ’70s. The industry has moved ahead so fast, and our clients’ companies have changed so drastically that we’re required to gather more data than ever before. Fire hazards have changed, and so have the nationally recognized standards. The industry has new models to predict earthquakes, hail and floods. The majority of the modelers’ data is delivered by the engineers. The modeling people, the underwriters and the actuaries all want data from the engineers.

So, the job is basically the same, but the types of data we collect have exploded. We need new ways to aggregate and synthesize it faster to remain competitive.

When computers were introduced at Wausau, they caused an uproar. The transformation was introduced to over 6,000 employees in a short time. HR explained to the risk engineers that this was the way of the future. “We’ve been stagnant for 50 years in the industry,” they said. “But from now on nothing will ever be constant but change. If you can’t get used to constant change, you’d better leave.”

Through a series of events, Wausau was acquired by Liberty Mutual. It was while I was at Liberty that I was asked to interview for the role of VP, risk engineering. I didn’t really want the job because I didn’t want to uproot my family and relocate at this stage in my career. I reluctantly went through the interview process without ever thinking they would offer me the position, but they made me an offer. I remember my wife saying, “You’ve complained so much about the way this company is run. If you think you can make changes, then you should take the job. If you don’t go for it, I never want to hear you complain again!”

I spent the next 15 years trying to bring harmony during a massive company merge. My greatest success was helping to rewrite the standards and guidelines for engineering and underwriting to meet the new and emerging hazards we were faced with at that time. 

What were the major key performance indicators (KPIs) when you started vs. now for risk engineers in insurance? 

Since the ’70s and my time at IRM, we would evaluate success based on how long it would take a field engineer or an account engineer to complete a task. But here was one of the problems: When I was a junior engineer, I would cover people’s vacations. The resident engineer would report taking six hours to complete a reinspection when I would complete it in two. Management picked up on this. The resident engineers gave me a hard time. They called me to say, “We don’t how care how long it takes you, you need to account for a minimum of six hours on a reinspection if that’s what was previously recorded.” The account engineers needed to account for 40 hours of account or project work per week, so they were always trying to find creative ways to meet their numbers. 

Management told me I needed to work on our report writing and analysis times to help reflect more accurate hours. However, the field engineers ended up moving their hours over from the report writing bucket to other areas such as the travel time bucket! That’s when we changed from tracking hours to measuring productivity. For example, we would look at how many inspections were made and, based on the scale of the building size and the complexity of the facility being surveyed, we would assess how many field visits they could complete per week.

Account engineers work in a grey world. They need to be comfortable with ambiguity and great in front of the clients. It’s a challenging role. We would measure the account engineer’s performance based on the number of account reviews with the clients they did and how many broker visits they made. We would also look at the number of risk recommendations they sold to clients. Eventually, we took away the account reviews as a KPI, because those will always be there. That’s where AI comes in; we can do account reviews a lot quicker now. We can be measured on the metrics that really count. That’s where I see the big interest is going to be with AI. Every company has the same problem. The engineers are inundated with paperwork and data.

Despite the challenges, I always highly encourage young professionals to pursue the role of field engineer and account engineer. It’s like waking up every day and going on a field trip that 99% of the world will never get to see. You’re like a kid in school exploring aircraft manufacturers, mining facilities, paper manufacturers, even prisons. You have the freedom to go in and explore every inch of the place and see how people get their job done. If you’ve ever seen the TV show, “How Things are Made” — it’s like that. You get to see how things are made, first-hand. You also realize how tough some people have it. For example, with some manufacturing plants people might get paid by the article they sew. That’s when you realize you have a pretty great life. I’ve seen people working long hours in five-story buildings at 95-degree heat. 

How do you think the future of technology is going to change the way risk engineering is done? 

The world is changing so fast. Insurance companies are trying to build the technologies internally, but they’re so slow at doing it. By the time the carrier has finished creating a product, it’s already obsolete. There’s a lot of resources being put toward improving underwriting efficiencies, but risk engineering is usually last on the priority list. We can perform virtual surveys and aerial mapping, but that still doesn’t solve the problem of analyzing the data. Now we can speed up the process of creating risk surveys and the time it takes to verify them, which is a landmark innovation.

Why do you think risk engineering is last on the list for change?

The way senior managers look at it, underwriting holds the key to success. Most senior managers come from the underwriting or the financial world. Risk engineering is thought of as a data source rather than a profit center or helping to minimize losses and reduce costs. Managers think it’s difficult to track the efforts of evaluating and analyzing risk, which is true. And claims are costly, so insurance companies focus a lot of their IT efforts and resources on claims.

That being said, clients are becoming a lot savvier and more intelligent about managing their own risk. Years ago, you’d have a financial person handling the insurance of a multinational corporation. Now you have an internal risk manager (yes, it’s an actual career path!), where they manage the corporation’s risk internally. They’re more involved in the terms and conditions, ensuring that the multinational gets the best insurance coverage. These internal risk managers understand they need to build loyalty with insurance companies, and, in turn, they’re looking for a long-term relationship – a strategic partner, if you will – and cost savings in return for good compliance. It takes corporations a lot of money, time and resources to change insurance companies. People are looking for more cost saving recommendations and relationships with their carrier to help minimize losses and reduce costs. Brokers are encouraging clients to convince carriers of their business continuity plans and show compliance, as well as a commitment to loss prevention and safety. They need to prove to insurance companies they have a stake in the game, because it’s a lot harder to get coverage today than ever before.

See also: 3-Step Framework to Manage COVID Risk

What are your concerns for the future of risk engineering?

My biggest concern is the lack of knowledge transfer with the younger generations of risk engineers coming in. IRM had a great training program and Industrial Risk Insurers (IRI) – one of the biggest carriers  – used to trained hundreds of engineers per year. They were the reinsurance pool for the stock companies. They had an extensive training program and did all the underwriting and engineering for their member companies. Sadly, the company experienced a series of unpredicted large and costly losses and was eventually dissolved. Kemper HPR went out of business also. AIG started building and training their own engineers a few years back, but now they’ve pretty much reduced their efforts in this area. It’s well known in the industry that 25% or more of risk engineers are retiring within the next five years. All of these companies used to have their own fire protection training labs. Now there are hardly any labs left. 

Chubb has a good training program, but not a lot of companies are providing solid training for up-and-coming engineers. I think it’s really a shame because it’s not the kind of course you can go find in a college. You can get a certificate or degree in fire protection but not in property insurance. You have to learn that side of the business and shadow the experts who have come before you. 

A lot of engineers used to move into underwriting, and that’s really how it should be. But now you have people coming into underwriting from finance and business schools. They don’t understand the risk engineering side and rely 100% on an account engineer’s assessment. That’s a real risk. 

If you had 10 more years of runway as a VP of risk engineering, what changes would you try to implement?

Well, first of all, I think I’d become an account engineer again. That was the most enjoyable time of my career! While it was exciting as a VP to build the risk engineering department, I was responsible for a lot of administration, too, like staffing and budgeting. I used to love when the account engineers or underwriters would come to me with an engineering problem. If I were to be VP of risk engineering again, it would have to be focusing on improving technology to speed up the reporting processes for risk engineers so they can focus on high-knowledge work and being client-facing. That and creating a robust training program for new people.

Ralph is a senior adviser on the board at Orbiseed. Views are his own.

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About the Author

Andrew Anzenberger is a senior product manager at Orbiseed, whose AI platform standardizes and summarizes commercial property data for risk engineers to reduce operating costs, improve win rates and manage risk better.

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