Zero Zealot: for Engelhard Corp.'s Richard Sarnie, loss is a four-letter word and deserves a four-letter answer: zero

Risk & Insurance, July, 2005 by Lawrence Richter Quinn

Rich Sarnie doesn't spend much time thinking about the highfalutin concept of "enterprise risk management" being touted eagerly by management consultants nationwide, and for that he makes no apologies.

Why should he? In the seven years he has been at Iselin, N.J.-based multinational Engelhard Corp., a surface and materials science company best known for its innovative work with catalytic converters, Sarnie has made employee and plant safety and security a priority and the lynchpin of his overall risk management program. In doing so, he has demonstrated that workers and supervisors matter as much to overall good governance and stakeholder value as, say, how a company's financial statements are aggregated and reported. He's engaged in ERM of sorts but ERM as defined by Sarnie.

Results to date have been impressive: In each of the last five years, global insurable property claims have been zero--no small achievement, given that previously Engelhard reported an average of one to two losses annually, each well in excess of $1 million.

"It's incredible if you think about what we've been able to do so far," says Sarnie, 41, a Boston native who's Engelhard's director of risk management, insurance and security and oversees those concerns for 100 locations, including 45 manufacturing plants in countries ranging from Brazil to South Africa and China.

But that achievement alone isn't enough to satisfy Sarnie, who has also concentrated on reducing personal injury losses and workers' compensation claims. With just 6,000 employees worldwide, percentage reductions don't look as dramatic as in the property arena, but they're happening anyway.

"With injuries, we're absolutely making progress, but we're not seeing the remarkable decreases that we've had in the property area. Nevertheless, we're downward trending below average as we benchmark in these areas. It's a good story.

"You have to continue to work at it," he adds. "When something happens you have to learn from it, apply it and feed it back into the system. It's not just 'we'll keep plugging away,' that's not acceptable to me."

His goal? "No losses, no losses of any sort," Sarnie explains. "Do I think it's attainable? Yes. Is it going to take a lot of work? Yes. But if you don't have a goal of zero losses then what's the point? So until I get there I'm not going to be happy."

His prior record would suggest that his "no losses" policy is attainable. At Friendly Ice Cream Corp. in Wilbraham, Mass., for instance, he reduced injuries for the 30,000-employee company by 30 percent in less than two years. At ProSource Distribution Services, a Coral Gables, Fla.-based Fortune 500 national food distributor, workers' comp and liability costs declined 35 percent in 24 months and lost-time injuries fell a staggering 75 percent.

Finally, at Dallas-based OxyChem, a chemical manufacturer, his plant became the first in the southwest part of the state to earn the Star award from the Occupational Safety and Health Administration for excellence in plant safety in the early '90s.

A HOLISTIC THINKER

Outside the safety and security arenas, Sarnie's concerned about the overall cost of risk financing.

Beginning in 1999, he pushed for the creation of a captive, Vermont-based CTN Assurance Co. (formed in 2002, after Sarnie made numerous board presentations). Now he handles terrorism coverage and, more generally, casualty, workers' comp, general and auto liability through the captive.

"We formed a captive because of reduced capacity with property insurance," Sarnie writes in Captives 101: Managing Cost and Risk, published by the Tillinghast business of Towers Perrin last August. "We were well on the way when Sept. 11 happened and would have otherwise been exposed to ... coverage gaps for our physical properties around the world."

Understanding that "the world is a riskier place with your traditional insurance being more restrictive and not covering your needs," Sarnie continually questions what kind of risk programs might be run through the captive.

"Rich understands that risk is more than buying insurance and views it in a much more holistic way than many," says Chris A. Varin, senior vice president at Marsh (Vermont) who manages the captive for Sarnie. "He calls with ideas about what we can do with it that aren't in the mainstream. I might have to say 'No, there's a regulatory requirement that will keep you from doing it,' but if he thinks it might lend itself to the captive, he's quick to call and vet the idea. And he's happy to dismiss it if it's not going to work."

At Sarnie's suggestion, Engelhard was one of the first multinationals to run its TRIA (Terrorism Risk Insurance Act) insurance through the captive. It was also Sarnie's idea to handle surety bonds via CTN Assurance. "You're essentially guaranteeing your own performance, so why would you want to give a third party money to do this?" he asks.

The captive and other risk financing ideas aside, there's no doubt his safety and security efforts are his most innovative. In an era when workers drift further from corporate management, Sarnie has created an unusual but real bonhomie between his insurance companies and their engineers and his own plant executives and employees.