Risk management practices have come under increased scrutiny in the wake of the global financial crisis. Regulators, auditors, clients, investors and other key stakeholders are pressuring organizations to identify and explain how they manage the risks they face. These discussions take place in the C-suite and boardrooms around the world, but one individual who could offer valuable insight–the risk manager–often does not have a seat at the table.
Risk managers are often viewed chiefly as insurance buyers, and as a result of a longstanding soft insurance market and a growing trend toward a more procurement purchasing style, they may be even further distanced from the ambit of the C-suite.
This "perception gap" was highlighted in Marsh's recent Excellence in Risk Management survey, conducted annually in collaboration with the Risk and Insurance Management Society (RIMS). Only 10% of C-suite respondents said they felt the risk management function was inadequately represented at the board or C-suite level, compared with 38% of the risk manager respondents.
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Today's leaders would be well-served to see risk managers as what they really are–managers of risk–and engage them in the enterprise-wide governance process. Yes, risk managers do purchase insurance, but while that is highly visible, it is just one component of the overall risk management program. Moreover, risk managers are adept at evaluating the predominant risks and exposures of most any situation with an eye toward protecting the organization's people, assets, earnings and reputation.
That said, performance expectations for managers of risk at every level of an organization have never been higher. In today's age of relentless acceleration, where one catalytic event can spread and amplify in exponential fashion around the world, it is imperative that risk managers be well-versed in the dimensions of risk and the tools and methodologies available to anticipate and manage risk.
Similar concerns apply to the increased role of procurement in the insurance purchasing process. While the procurement function certainly brings additional rigor to the decision-making process engaged in by the risk manager and various insurance vendors, if the predominant selection criterion is that of nominal, short-term price, other crucial factors such as program breadth, service, claims responsiveness and historical relationship value may be shortchanged.
Procurement officers should work in tandem with risk managers to evaluate the immediate and longer-term costs, benefits and risks associated with each insurance option. The risk manager knows the individual markets–their strengths, preferences and historical performance–and the added value that such qualitative attributes bring to the process.
If there is an overarching lesson to be drawn from the events that led to the financial crisis, it is that risk management should play a significant role in shaping business strategy. Every business decision, including the purchasing of insurance, should take into account the risks involved. And who is better positioned to provide advice about those risks than the person who lives and breathes risk every day?
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