Business Value and Insurance? A Conversation with Thought Leader Zach Finn
It’s not the most obvious choice to have an insurance expert as a guest on the show, but Zach Finn is someone that is really impressive. Zach Finn is Clinical Professor and Director of the Davey Risk Management and Insurance Program at the Butler University College of Business. Previously, he was Risk Manager for The J.M. Smucker Company in Orrville, Ohio, where he managed the Corporation’s risk management program, including global insurance program design and placement, successfully settled several large claims (largest $17M+), and oversaw insurance due diligence and integration for nine major mergers and acquisitions, including the $3.3 billion acquisition of Folgers Coffee.
Enjoy this conversation with Zach Finn!
2:30 – How did you get involved in the insurance industry and Butler University?
6:11 – What made you get into the commercial side of insurance rather than the traditional route?
8:10 – How do you assess risk and see how we can mitigate it during this pandemic?
10:04 – Do you feel the government stimulus is getting money into the right hands to save businesses right now?
11:44 – What would it take to get the recommendations you have made for pandemic coverage enacted?
14:16 – Are you the avatar of the future for insurance professionals?
18:15 – Can you speak to how insurance plays in impairing or amplifying business value?
20:43 – How do you see businesses and where do you see the challenge that they have with risk?
28:25 – Where do small business owners start in getting and understanding what insurance they need?
25:01 – How do you find the insurance agent or company that has a special expertise in your type of business?
36:13 – So what are the policies that are needed by business owners? And what are the most overlooked provisions that somebody needs to spend some time on?
58:25 – Connect with Zach
How did you get involved in the insurance industry and Butler University?
When it comes to insurance, I guess you could say the force is strong in my family. I mean, my grandfather even sold life insurance back in the day in Richmond, Indiana. My dad was a life and long term care agent. In fact, he’s probably doing voluntary benefit enrollment right now as you speak. So I picked my career actually, not because of their careers, but in spite of them. You know, for me, I wanted to be a finance major, I went to Indiana State as a finance major. And while I was there, my good friend, talking about the insurance & risk manager program, he talked about the fact that there were only 15 universities that offered this degree but yet it was for a multi-trillion dollar industry and how there was all these job opportunities. And I remember thinking I’m a B student that sounds great. I don’t want to compete against you know, the A students at Harvard for finance and never have a chance when there is no risk management degree at Harvard there is no Harvard people to worry about. And so once I picked the risk manager insurance degree, I really enjoyed the material because it was about problem solving.
It was about you know, putting people’s lives back together after bad things happened. It was a business with a little bit more of a noble bent to it. And when you have an insurance degree, you start to get the question of, you know, do you want to be an agent, a claims adjuster, an underwriter – and for me it was actually, I still want to work in corporate finance. I want to be in risk management.
What made you get into the commercial side of insurance rather than the traditional route?
I have much love and respect for my personal line friends. I actually enjoy all the Personal lines products. I’m a life insurance geek and I’m the guy who bought his kids whole life insurance for their college graduation, you know, prepaid up and ready to go. So you know, don’t get me wrong, I love my personal lines friends, but, you know, for me, I mean, versus what is commercial lines – that’s concussion insurance. That’s how they’re going to the NFL when volunteer coaches don’t want to volunteer because they get sued for not following concussion protocol. That’s how do you insure a pizza through a drone or satellite insurance and all these things that people just never think. That’s the problem of insurance you just hit right on the head. It’s a product that somebody forces me to buy against my will, I get that – pay a bunch of money either because the state or my wife or somebody said so and then I only get the value if something terrible happens. And so, who would want to be part of that transaction? And then if you ever have a claim, you don’t know if insurance is any good. So I always tell the story like that, finance, bad accounting, bad marketing, you know, immediately you get an immediate, you know, my ROI sucks. I hate this example, but I love Bill Cosby’s comedy and I loved a lot of things that he did for African American’s entertainment. And then you find out he might have been America’s most prolific rapist. And so, you know, that’s what risk is. It’s great until the day you wake up and you’re like, Oh my god, Tom Hanks is sick and we’re all grounded at home That is so interesting because we’re writing the playbook as we go, right?
How do you assess risk and see how we can mitigate it during this pandemic?
I just see risk in a completely different way than most people do. And there’s a whole generation of people that are coming up that can do this. I mean, you have a situation where the Speaker of the House is on national television. She didn’t know pandemics weren’t included in Business Interruption Policies. It’s not like this knowledge is brand new or has not been known. It’s just the whole world never been on fire before, to where we awaken this, you know, brigade of risk managers. You know, so for someone like me, you know, this is just the way you’re supposed to deal with risk management but most people haven’t figured that out so that’ll be one of the byproducts of this – you’d have Congress handling this like a business interruption claim not sending stimulus to my dad who’s on social security and not out any income, not sending stimulus to the employees of JM Smucker company, who are gonna make more money and peanut butter and jelly bonuses than they have in their lives.
Do you feel the government stimulus is getting money into the right hands to save businesses right now?
I fully believe that we could have liberalized the Terrorism Risk Insurance Act (TIRA) to include pandemics. I believe we could have backdated that coverage to include Coronavirus. I believe we could have retroactively offered it to anybody who declined it before for perhaps a higher premium. And I think we could have turned on all business interruption insurance for every business in America. I think about business interruption insurance – what it does, it pays businesses or gives them certainty during disaster and includes your payroll. And so we would have never even had to lose any of these jobs – not one of them.
All the insurance had to do was agreed to pay claims through Terrorism Pandemic Risk Insurance Act, revised amended terrorism pandemic risk Insurance Act and then work with the government to be backstop. We’re bailing out industry after industry, the banks are taking 5% of the paycheck protection program like a bunch of crooks, and then getting the fees from the biggest clients first, and not being American at all. And it will vary as the insurance industry could have said, “Hey, you know what, we’ll pay all these claims through TRIA or restore certainty to business, restore payroll resources. And you could take all the money that you’re sending social security, to people that aren’t even out of paycheck, you could take all the money that’s going to essential businesses that aren’t out of paycheck, and you can take all the money that’s gone to the banks, and you can actually just backstop the insurance TRIA and just do one bailout for people’s actual losses. I mean, imagine that.
What would it take to get the recommendations you have made for pandemic coverage enacted?
There’s two parts of it. Well, maybe three! One is the lack of insurance knowledge, right? So you know, if you don’t know anything about insurance or risk major and you’re dealing with a Speaker of the House, you’ve just learned that pandemics aren’t covered in business interruption insurance, the amount of educational data that I need to get over is, frankly, too high. And the other part of it is the politics and the muscle memory of bailouts. And this is, you know, again, if you’re a hammer, everything looks like a nail. So we’ve done that. And then I’ll tell you the other part of it. I’ve yet to speak to elected officials. I’m 42 years old. I’ve never spoken to an elected member of Congress in my entire life. Ever. I got the Terrorism and Immigration Insurance Act through intermediaries to the White House to McConnell to members of Congress, I’ve finally been able to speak to, the General Counsel, member of the Small Business committee was very helpful. And the Chief of Staff to Congressman Tim Ryan was very helpful. But to this day, 4 insurance degrees, 20 years of business or pandemic preparedness experience, and I’m writing stuff that I know they’re reading. It’s in The Washington Times in the Washington Post, and I’ve left messages for my Congressmen and Senators, and I couldn’t even get them to pick up the phone – it’s amazing. It’s absolutely amazing to me that this is how government in fact works. I can’t believe it. So how do you fix it? You throw all these people out? I don’t know.
Are you the avatar of the future for insurance professionals?
I was actually already on this path before the pandemic. I’ve been working with some big names in the industry that were actually gonna form a venture capital fund, because one of the things that I’ve identified in my adventures, you know, we set up the first student run insurance company. One of the reasons we did that was just to show the industry that we could. A lot of people want to give them work that was too basic. They want them to process certificates of insurance. They’ve done a feasibility study. And so the only way to get the industry to understand like, no, this is what these kids can do is We actually set up a student run insurance company, we had the Minister of Finance of Bermuda tell us our students work with, like, up there same as, as good as or better some of the professional plans that they had seen. And that was about giving our students a real life experience. But it was also about showing the industry, the wave of the future, because what’s going to happen with insurtech is it’s going to become risk tech.
Why would you if you if you have technology that could change risk behavior? Do you really even need an intermediary like an insurance company to do that? I mean, most insurance is bought because people don’t understand the risk well enough to feel comfortable retaining it. And so a big part of my job as the risk manager at Smuckers was actually finding all the ways not to buy insurance and look at more unique alternative risk financing structures. And so, you know, if I were a risk manager today, looking at pandemic risk, I know exactly how I would handle it. I would set up what I call – I think I’ve invented this – but a buyer controlled insurance program. I’ve taken an owner controlled insurance program for the construction industry where they use that to keep all those subcontractors in line. So think about if you’re running a big supply chain and you don’t want to vertically integrate that sucker, but at the same time you don’t want to have no visibility into it. And people don’t understand that with business, you take out one plant – like three or four canning jar plants in the whole country – I mean you start taking out one or two plants you’ve taken out a lot.
People don’t understand you can’t have a lack of visibility of your supply chain so what you do is you sell your suppliers, product liability and recall – you sell all the stuff you’re going to get the bill for anyway, right? You’re going to pay that liability recall claims. You say quote me the strawberries or the dog food or whatever it is with your insurance, now quote without. You’re gonna buy it from me. And so technology will now enable other companies to do what McDonald’s has been doing for decades. And when you get third party risk that you’re selling your supply chain, guess what you can do, you can sell yourself a billion dollar pandemic insurance at a 21% tax deduction. And then you can start to take that pandemic rider and you can lay it off on reinsurance or you can, you know, go to Renaissance re and develop some insurance linked securities. Or if the pandemic Insurance Act passes, you can then link that up with the government. So this is how a risk manager like me is going to think.
Can you speak to how insurance plays in impairing or amplifying business value?
One of the things I actually love to do in my career is work on mergers and acquisitions. Okay, I must have done 30 or 40 due diligence and closed on maybe a dozen or so different acquisitions. And so I’m very familiar with the representations and warranties side of this and evaluation. And you would hear stories of, you talked to like the cyber folks in the FBI, they would tell you that one of the reasons like they had a cyber claim, or I guess this company had a Chinese national that came in, stole all their trade secrets of China and then they didn’t want to follow anything with the FBI because they’re in the middle of Hellenism. Think about that. I mean, that’s a very bad faith acquisition. But that happened, right? And so they’re not recording that because they report that they were hacked and there’s no value to the intellectual property and that’s a total violation of representations and warranties. But those are the kind of examples I mean, risks are things that hide in the seams.
How do you see businesses and where do you see the challenge that they have with risk?
I have a great story. For this actually, one of the great things about working at the Smuckers company, is you would actually get to have lunch with the executive team, including Tim Smucker. They’re really nice, great guys. I used to say that they could run that company if their name was Johnson. And Richard Smucker, in particular, very interesting guy who’s Vice Chairman of Cleveland Federal Reserve during the Great Recession, and has just a great sense of humor. So I was there – first week on the job. He asked me, he said, “Hey, you know, Zach, what’s my number one risk?” And I was like, “Oh I don’t know.” He’s like, “we just hired you and paying you all this money to know my number one risk.” And I’m like, “Why, I don’t know Richard, which one of your 24 production facilities, 60 distribution centers, three corporate headquarters, 5500 employees, five and a half billion dollars of revenue, whatever cool stuff you have at home – what I don’t know about is what is most important to you. Is it one of the jelly plants which bears your name? I don’t think it is because those plants aren’t at 100% capacity. And so you can probably afford to lose one and be okay. I bet the most important thing to you is probably your JIF plant right now. Because right now it’s the great recession and peanut butter is the cheapest protein in the store. Peter Pan’s out for the count on a recall – their 12% of market share is up for grabs. And you’re running this plant at 140% of the capacity that Proctor granted. For every molecule peanut butter you make, you can sell, and it’s going to cost you this many thousands of dollars for every hour, you’re down. And you can’t afford to be down. And it doesn’t matter whether it’s an earthquake, or hurricane, a tornado, planet of the apes, elephant stampede – doesn’t matter.” It honestly doesn’t matter.
What shuts that plant down? What’s really important is what’s in the 24 production facilities. Why is it the most important then what can you start to do? You start to look at things like okay, you know, when you roast peanuts on an industrial scale, if you search Lexington and peanut roaster, you’ll find a few flyers every now and again. It’s just I’m sure you get peanut meat and skins in the roaster and you’re shooting hot air on it and you pop a roaster. And so you put explosion panels on that so that the energy of the explosion goes up and you keep your employees safe. And then it becomes a matter of getting replacement panels on your roasters and you’re up and running. And so then you look and see that these take six weeks to order and they’re flat, why not stick up under my desk. It would be up and running in a day. And remember, it’s however many thousand dollars an hour per hour, and so you start to save yourself. It’s really about winning this plant. It’s really about losing this roaster and getting replacement panels so that roaster means that we can get up and running in 40 hours versus six weeks. I have yet to even say why they’re down. Think about that. We just addressed a major issue for that plant and that can be for any plant and we aren’t even talking about whether it was cyber or elephants or whatever it was.
Where do small business owners start in getting and understanding what insurance they need?
I would recommend you work with a great independent insurance broker. And what you’re going to want to do is have them sit down with you every year and do what’s called a gap report. We used to do this with Tim and Richard Smucker and the leadership team at Smuckers. We would sit down and I would say, look, here’s all the insurance you have. Here’s all the deductibles you have. Here’s all the limits you had. And here’s why you told me you wanted them and here’s why I recommended what I recommended and let’s just all agree is this still what we want to do this year? So, you know, the risks of that company or any company are going to vary based on what’s going on at the moment. So it’s important that you know, what might be the right insurance program for the size of your company today could be different. If your company’s bigger or smaller, it could be different. If it’s a different time of year, it could be different if something’s going on in the world. And so if you look at it every year, then you at least know like, okay, I’ve signed off on any gaps. And that’s the big one is to have your agent or broker sit down with you and your leadership team, if you’re not the owner, to say, look, pandemic insurance exists. Well, yesterday it did, maybe it won’t after this.
How do you find the insurance agent or company that has a special expertise in your type of business?
You want to reach out to some of the great trade associations. We just want everybody to get what’s best for them. And so I think part of it is asking and doing your due diligence and the other thing to remember is most people aren’t specialized enough to need an industry expert person, right? If you’re just a regular manufacturing or contractor you may not need some great industry specialization.
So what are the policies that are needed by business owners? And what are the most overlooked provisions that somebody needs to spend some time on?
When it comes down to what insurance you should have, there’s what’s required by law, what’s required by contract. So most businesses are going to have auto because they’re driving, they’re going to have workers comp for employees, you’re going to have general liability, because you can’t really sell anywhere without it. So for example, Walmart’s gonna usually want to see a million dollars of commercial general liability insurance and maybe a $5 million umbrella. So a lot of businesses insurance programs end up being dictated by their contracts. In fact, we looked at the insurance program for the capital improvement board, and we made some recommendations on how they might improve that because what they were doing is they were buying insurance based strictly on what was required in the contract. Contract of 75 million, we need 5 million and the answer is no, you might need more depending on what your actual risks are, your financial position is, etc. so that’s a big part of it. To get into crime and these other specialized coverages, business interruptions, the most important business owners will buy property insurance. And when you buy property insurance to cover your building and personal property, it’s very important that you spend the money for that business interruption, that extra expense coverage will start to get under the hood of a property policy, you actually have to pick what you want the property policy to cover you against. So you can take kind of a basic perils approach – just give me the big things, the lightning and the fire, that kind of the normal stuff that’s going to go wrong. You can soup that up a little bit and try doing some other kind of perils, and it covers all risks except what’s excluded. And that’s really your broadest coverage form.
Connect with Zach Finn: