4/30/2014

Inside Risk with Dellanie Fragnoli, Costco

See how the Costco's assistant vice president of risk management keeps a lid on family-sized risk.

By Eric Gilkey

Dellanie Fragnoli, Assistant Vice President of Risk Management, Costco

When you think about Costco, you must first think volume. Consider this: The company has two million register transactions a day, $100 billion in annual sales, and 180,000 employees. Its 70-million paying members would be enough to make the list of the top 20 largest countries in the world for population.

Risk comes in family-size quantities, too, and keeping a lid on it is CLM Fellow Dellanie Fragnoli, who works overtime to keep it at bay.

Q. How did you find risk management and Costco?

A. Like a lot of people, I came into risk management by accident. I have a degree in economics, and right out of college I started working for a utility company in Southern California, in their economics department. Six months later, I moved into their risk management department. I enjoyed it a lot, staying there for six years. From there, I moved to Price Club, which merged with Costco a couple of years later. That’s when I was named risk manager for the combined companies. I’ve been with them ever since, nearly 23 years.

Q. How does an economics degree help you in your job?

A. Being analytical is important in economics, as is not being afraid of numbers and data. Both of those things are useful in risk management, especially considering the kinds of data we have access to.

Q. What’s your day-today life like?

A. No two days are exactly alike. When you are as big of an operation as we are, something somewhere is happening in the world. What I enjoy about risk management is the diversity. One day involves dealing with a claims issue; the next consists of looking at actuarial numbers or negotiating with an insurer. There’s a real variety to what I do, which I enjoy.

Q. What are some of the risks you manage?

A. Costco is all about volume in everything we do, so we have that expected frequency but relatively low severity when it comes to common exposures like workers’ comp and general liability. That drives most of our programs. In terms of the big-picture issues, it’s the things that are harder to manage, like reputation. Our members pay for the privilege of shopping with us, and they have come to expect high quality at a low price. If we don’t live up to that, we will be punished for it. I think we’ve seen that illustrated recently with Target, which saw a loss of sales after their data breach. Those types of concerns keep me up at night.

Q. What lessons did you take away from the Target breach?

A. We’re looking at some of those things right now. What was interesting about Target, first of all, was the size of it. It was huge. This is a company that is PCI-compliant—as any large retailer has to be—so they probably thought they were doing things correctly. Secondly, they didn’t know they were infiltrated until months after the first breach. Something like that makes you look closely at what you do, because it’s easy to get complacent. 

Q. Have you ever taken a risk and turned it into an opportunity?

A. As the Tylenol-tampering case illustrated many years ago, there are ways to handle a bad situation and come out looking better than you did before an incident. A number of years ago, we had a recall involving our ground beef; there were E. coli contamination concerns. Because our customers are members and we have the ability to track their purchases, we were able to reach out and notify those beef buyers about the recall since we knew they had bought the product. The response we got from our members was very positive because they felt like we were looking out for them and their safety. They felt better about Costco because of how we handled the situation.

Q. You’ve been at Costco for 23 years. Are there any claims that stick out to you?

A. When you have millions of people walking through your buildings every day, customers are going to slip and employees are going to trip. We’ve had a number of interesting ones, though—some of which I could only tell you over a drink! There have been things like shootings—usually law enforcement-related—and even a woman who hit 17 cars in one of our parking lots. Not to mention fires, floods, and hurricanes. If you name it; we’ve had a claim for it.



Eric Gilkey is executive editor of CLM Magazine, a publication of the Claims and Litigation Management (CLM) Alliance. He may be reached at 513-273-8025, eric.gilkey@TheCLM.org.

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