By CYRIL TUOHY, managing editor of Risk & Insurance®
It's considered an industry maxim that true risk management is not subject to an algorithm.
There you have it--there you have exactly why risk managers will never be replaced by machines, nor perhaps will experienced risk managers ever be completely replaced by youthful go-getters.
For risk management is an art and skilled risk managers artists. Like writers who need a pen or keyboard, or painters who need brushes and paint, the core ingredients of good risk management are the same today as they ever were, according to Jim Gunther, a specialist in recruiting risk managers.
Communication skills, an affinity with the business side of the enterprise, and the ability to navigate in what can sometimes be a technical and complex insurance world are requisite qualities for any risk manager looking for work in the field today.
"Whether it's articulated or not, that's what the client looks to," said Gunther, who recalled the maxim above from his time long ago in the risk management ranks.
In this recent help-wanted ad for a risk management specialist posted on Monster.com, the client, Chicago-based CME Group, articulated its needs in black and white.
"The risk management specialist will be responsible for evaluating and modeling counterparty exposures to the Clearing House. This will include using and developing tools to monitor P/L, Value-at-Risk, stress testing and portfolio analytics. Both qualitative and quantitative analysis are utilized to assess market, credit and operational risk to the Clearing House."
If a little short on the details about the need for a communicator, CME Group makes no bones about having a candidate sensitive to the employer's business needs and skilled in analytics.
Clients like Redmond, Wash.-based Microsoft Corp., for example, which relies on the judgment of senior risk executives like Lori Jorgensen, senior director of finance, risk management, to help run their risk management programs, favor managers trained in a quantitative background.
Jorgensen said that when she looks for risk management talent, she looks for candidates with outstanding analytical skills and a strong background in math and in problem-solving. The stakes for self-insured companies are much higher.
A perennial leader in the technology sector, it's no surprise that Microsoft exhibits a bias toward quantitative talent. There's another reason for the reliance on the quantitative skills, however.
More Fortune 1,000 companies today are self-insured, and so the in-house risk management staff has to be more adept at retaining risk than in the past.
In 1950, when the precursor of the Risk and Insurance Management Society Inc. was called the National Insurance Buyers Association and then in 1955 renamed the American Society of Insurance Managers, the most important decision insurance managers made was what kind of coverage they could get at what price.
Years ago, risk professionals typically got their start at an insurance company or an insurance broker--as she herself did, said Jorgensen.
Risk managers today, she said, are professionals who have to understand the balance sheet and the profit-and-loss statements of their employers.
They have to understand the impacts of those items and have to talk that language with senior management and, at the same time, earn a seat at the table within the company's myriad businesses.
"These people just can't afford to operate in their respective vacuums any more," said William M. Lonchar, vice president, manager of Atlanta operations, with FM Global.
While the job has become more all-encompassing, the good news is that it's easier than at any time in the past for the corporate HR department to hire risk managers with those three core ingredients than in the past, said Gunther.
He's even been around risk management long enough to chuckle about one of the industry's inside jokes: "What's the difference between a risk manager and an insurance manager?" he asks. "About $15,000 a year."
Insurance trainee programs offered by the top property/casualty carriers, once upon a time the golden gateway into the industry, have faded over the years, victims of budget cuts.
Some corporate trainee programs are still around, of course, but academic institutions in particular have stepped in to pick up the slack, and there's no longer any doubt that undergraduate and graduate-degree programs are producing high-quality risk management graduates.
St. John's School of Risk Management, for example, or Georgia State University offer top-notch risk management programs, routinely vaulting graduates into the ranks of the Fortune 1,000.
Graduate degrees are rapidly becoming de rigeur among young graduates like Yelena Veretennikova, 2008 Master of Science in risk and insurance at the J. Mack Robinson College of Business at Georgia State, or Samit Shrivastava, a 2009 M.B.A.in risk management and insurance.
In addition, the professional associations like the Chartered Property Casualty Underwriting Society have stepped in to help with a phalanx of career development programs offered year-round.
It's not unusual for a corporate risk manager to trudge around the country lugging the ARM, CRM and the more weighty CPCU designation behind their corporate titles.
Often, risk managers have all three traits in their quivers.
"Better people are entering the industry and moving into the business today than was the case many years ago," agreed Gunther. "People today seem to be more career-oriented than they were during the Vietnam generation."
Of all the skills necessary for a risk manager, the ability to bridge silos is perhaps the most important, he said. To do that, communications skills are arguably a risk manager's most valuable asset.
"Bridging those silos has been a part of anybody who's been a successful risk manager and risk managers who've been good or who've provided value to their organizations," he said.
Risk managers also need courage. They need the courage to make an unpopular decision, to go against the grain when they feel it is in the interest of the company to do so.
Pulling tainted Coke or poisoned Tylenol from the shelves was not an easy decision, said John McLaughlin, senior managing director with the consulting firm of LECG
"You have to be able to speak your mind and to be able to say, 'That's not really true,' " said McLaughlin. That's not always easy in large, complex companies where people at the upper echelons are accomplished, smart and aren't used to being told "no."
At the end of the day, added Gunther, risk management has to be fun; it has to be enjoyable. Most risk managers aren't in it for the money. Relative to other positions within the financial services industry, risk management isn't very well paid.
There are exceptions, of course. Risk managers like Mark Meyerhoff Sr., director, risk management and insurance, at Boeing Co. and Skip Neilson, deputy regional manager for the Americas at Shell Oil Co., you've got to believe, are handsomely rewarded, but they are the exception.
The most fulfilled and content risk managers working today are those who are allowed to navigate the length and breadth of an organization, serving almost as an überconsultant and dealing with everybody within the company, Gunther said.
Risk managers may not have to summon the courage or rely on their communications talents right away, but the fact that they will have to call on those talents at some point is a foregone conclusion.
What risk managers know, what they believe, how they react and how they communicate that to others within the corporation matters, and it often matters more than even they might dare to think.
"You can't tell me that when Ford's tires were exploding all over the place, that there wasn't somebody looking at accident reports and loss trends and saying maybe we have something here?" said Gunther. "Baloney," he added.
At the end of the day, said Lonchar, the best risk managers, no matter how high their educational attainment, no matter what their skill levels, have the ability to turn a potential disaster into a distraction.
That means putting aside the science of algorithms and mastering the art of bridging the silo.
May 1, 2010
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