Risk professionals should be happy that Hurricane Katrina caused so much damage. While it would be improper to express this happiness in mixed company, a disaster of this magnitude is very good for the profession as a whole, even if it did drain the bank accounts of several insurers and captives. We in the risk management and insurance professions need big disasters every so often to re-establish their value. Without them, our careers would be at risk.
Risk managers are charged with insulating companies from big shocks. If they are very successful and skilled, their presence can go almost completely unnoticed. For the most part, this is exactly what happens with risk management departments. Effective risk managers remove the worry over disruptive events so well that the business can just continue making money without having to worry about what the risk managers are doing.
However, when things are going very smoothly and the risk management function can go unnoticed, so can the value of the risk management function.
And herein lies a real danger for the effective risk manager. When things are going well, risk management functions might not seem like such a necessity for the corporation and therefore be downsized, outsourced or eliminated.
By contrast, the hurricanes of 2005 will cause risk professionals to see an increase not only in their perceived value, but to the whole industry in terms of the dollars spent around risk analysis, loss prevention, loss funding and insurance. Not only will there be increases in premiums to cover the exposure, but there will also be a flurry of activity in hiring loss prevention, risk and insurance consultants, as well as the usual attempts to get around the premium increases such as captive creation. Disasters and big losses highlight all of the work done by the risk managers, brokers and continuity planners.
It is a strange irony that a profession that purports to prevent and prepare for disaster is least valued when things go right and none occur, and most valued when things go wrong and disaster strikes. It puts us in the odd position of having to avoid big disasters, but also needing them to justify our existence. Certainly no one would suggest that anyone is hoping for hurricanes or earthquakes to occur; however, one can see how risk and insurance professionals have become associated with disasters and loss.
It is precisely this association with loss and destruction that drives some of the negative stereotyping of risk professionals. While many value the services of risk management, there is still a perception problem. One need only watch a movie like "Along Came Polly" to see what the public perception of a risk manager is. Being portrayed as neurotic worrywarts is an understandable side effect of selling FUD (fear, uncertainty and death), as we have for a long time.
I have had countless discussions with people from other departments within my company regarding risk management. Often, when I have discovered them struggling with risk mitigation, I have asked, "Why didn't you call risk management?" The response is always the same: "Because they would have just told me all of the reasons not to do the project. Risk management can only see the reasons not to do things."
Our profession has to find a way to overcome our dependence on disasters and our Chicken Little image. Depending on acts of God to justify one's existence is very risky. Thankfully, we have some time to work on a solution; as long as they are still cleaning up New Orleans, we are all safe.
manages risk for Sun Microsystems Inc.
April 1, 2006
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