Evolving the Risk Management Role in the Complex Market Reality
By BRUCE ZACCANTI, a Chicago-based principal in the Insurance and Actuarial Advisory Services practice of Ernst & Young's Financial Services Office
For many years, executive leadership teams have hired risk management professionals to buy insurance, administer contract provisions, manage claims and loss reserves, market and design insurance programs, and manage broker and other insurance vendor relationships. The mission of these professionals was to design and implement cost-effective insurance risk management programs.
However, the risk management profession is being propelled into a new era by significant events of the last decade. Developments ranging from the introduction of the Terrorism Risk Insurance Act to the outsourcing of business operations to the current financial uncertainties have combined to rewrite past rules.
Further reshaping the future and placing new demands on risk managers are the globalization of the business environment and the recessionary pressures driving the economy. Risk managers who proactively identify, assess, develop and present strategic alternative solutions will meet changing business needs and add a new leadership dimension to their current portfolio of capabilities.
SOX ONLY THE START
Developing risk financing approaches and global insurance programs and helping to implement and monitor the Sarbanes-Oxley framework are only the beginning. As enterprise risk models become the cornerstone of risk-based capital management, the chief risk officer is gaining stature and credibility in many organizations and enhancing the authority of all risk managers within the organization.
While many risk professionals have recognized the opportunity to step into newly expanded management roles, others have not yet risen to the occasion. Progressive risk managers have begun to explore the use of capital markets to finance and place catastrophic risk at favorable premiums never thought possible. This type of activity requires the development of additional finance, accounting, economic, regulatory, tax and communication skills to prepare and sell innovative concepts to management and the C-suite.
As the landscape continues to evolve, risk professionals must demonstrate command of their craft and their department and be able to communicate with the executive and operations teams as a partner. Like leaders in other business units, risk management professionals are increasingly being asked to prepare budgets and business plans that include annual goals and objectives. Instead of being judged on the basis of their success in achieving insurance market renewals, the performance of risk management professionals will be evaluated on the basis of other stated goals.
As this shift takes hold, risk professionals will need to show they can be value-added business development leaders. They will need to work interactively within the organization to make it more flexible, more competitive and more versed in risk management methods. They must be able to document and explain the cost and components of their programs and perform year-to-date and prior-year to current-year projections to show how their strategies are working. This will allow them to demonstrate the stewardship they are providing and the leadership role they are taking on.
THE NEW SKILL SET
To gain recognition for their new role, risk professionals must develop new skills, most notably, those in the more general business domain. Among them are:
Communications: Outstanding written, verbal and presentation skills are paramount.Risk managers can be the best tacticians in the world, but if they cannot properly convey ideas in concise and clear business language and show clear business results, they will have difficulty achieving the transition to leadership.
Future-oriented thinking: Thinking proactively and creatively is critical. Perception and pragmatism are the keys to strategic action.
Company knowledge: Risk professionals must learn as much as possible about all aspects of their company in order to develop and demonstrate the attributes that will best fit its culture and specific needs. They must also cultivate relationships with key players to promote risk management throughout the organization.
Capacity to influence: To move to the next level, risk professionals must hone their ability to inspire, educate and coach.
No single individual can be expert in all areas. Risk professionals and CROs must identify the key risk management functions for their company within their scope of operations and then determine the methods and communication styles that best fit their domain. They must also pinpoint areas across the company where their expertise and knowledge can help identify, measure, prioritize, accept, transfer or retain, and then monitor and control specific risks.
A risk manager has accomplished his or her goals when everyone in the company thinks and acts like a risk manager. True success is achieved when each individual serves as the eyes and ears of the organization, sharing information that allows the risk manager and the executive management team to utilize capital effectively to design the programs that protect the employees, assets and shareholders of the company.
The model of requisite experience, capabilities and knowledge for the risk professional of the future is as dynamic as the global business environment of today. While every risk manager has different strengths, none can afford to rest on his or her laurels. It is imperative for risk professionals to continue to grow, develop and adapt to new business models, new risk exposures and new methods for managing risk to become and remain leaders within their companies.
April 15, 2009
Copyright 2009© LRP Publications