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By DAN REYNOLDS, senior editor of Risk & Insurance®.

It takes a lot of courage to take a look at an entity or a system and to say, "You know what? This thing isn't working, and we need something new or we will fail."

This year's Risk Innovator? issue has several examples of innovations in insurance products and risk management techniques undertaken that transformed the culture of the companies that they were implemented in.

Such things as algorithms that allow risk managers to demonstrate the return on investment for pursuing certain risk management strategies are just what the doctor ordered. They are exactly what the profession has been clamoring for.

How else are chief risk officers going to make the persuasive arguments they need to convince CFOs and CEOs of the value of their programs? Heck, how else are they going to keep their jobs, given the cost-cutting that is going on across many risk management departments?

We've seen other innovations this year that create online, interactive risk simulators, which allow every department manager--for that matter, every employee in the company--to measure how risk mitigation efforts integrate with or affect business processes.

Some innovations are simple, but they get the job done and required no less courage to create than more complex products. We all know about the rash of copper thefts that have been plaguing construction sites and factories. One fellow did something simple and innovative. He came up with a system of marking copper pipes and let potential thieves in on the deal, saying essentially, "Hey, this stuff is marked. Do yourself a favor and don't steal it."

Didn't take much, did it?

In the field of alternative energy, the development of solar and wind projects has been hamstrung by product warranties that offer declining values of return over the 25-year life of the warranty. On at least two different fronts within the past 12 months, brokers have come up with risk transfer mechanisms that allowed alternate energy projects to be that much more attractive to energy investors.

What's the result of that? The long-term result is more electricity produced by green energy sources, which means reduced carbon emissions.

Those innovations happened in the past year, and we didn't have them before. Incrementalism is great if you live in an environment that isn't undergoing radical change, but that's not the environment we live in.

September 15, 2011

Copyright 2011© LRP Publications