Answering the Questions of the Day

Answering the Questions of the Day | Risk & Insurance | We recently held an annual meeting for the risk management executives of many of our largest global clients. These executives manage risk in a variety of industries and their companies are headquartered in various parts of the world. It's clear from our discussions with them that the risk management process itself remains even more daunting and more challenging than ever before.

By TIMOTHY J. MAHONEY JR., president, global risk management, at Marsh in New York

Everyone is under increasing pressure to do more with less. Risk managers now live in a world of heightened scrutiny and sensitivity. Boards pay more attention to risk management and demand more from their risk managers.

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Beyond increased board involvement, general counsels, chief financial officers and auditors have lengthened the agendas for risk managers in this environment. Meanwhile, like all departments, risk managers are under pressure to reduce staff and costs.

Risk managers are wrestling with critical issues, such as how to maximize spend, allocate time and improve efficiency--all amid an increasingly complex and changing marketplace. While the risk management function plays a critical role in many enterprises, some global risk managers express concern over their organization's overall commitment to risk management in such a difficult economic environment.

There are specific problems related to the worldwide recession. For example, Kroll International reports that, during an economic downtown, fraud increases. Security concerns become increasingly important and often require an increased investment in safety and loss control.This dynamic presents difficult choices: How can you cut back on these kinds of prevention expenditures at the same time that even more complex risks begin to emerge?

Risk managers face fundamental questions that are difficult to answer:

Risk optimization is a critical component of our clients' strategy.What are appropriate levels of risk transfer, limits of liability and retentions?

Meanwhile, the challenges confronting a number of insurance markets have made a difficult situation even worse. Placing certain lines of insurance has become more complex. Risk managers want an independent financial analysis of carriers and there is a strong move to diversify insurance portfolios.More due diligence is required. Yet the tightening of the capital markets may prohibit or restrict the entrance of new capacity.

In this environment, a commitment to innovation by brokers, insurers and risk managers is absolutely critical.And in this economy, with the negative economic trends, there is a need for a greater commitment to the implementation of sound risk management practices across all areas of an enterprise.

April 15, 2009

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