COUNTERPOINT: 2012: Another Challenging Year for Risk Managers

From workplace risks to global finance, 2012 is going to be another tough year for risk managers.

Anyone who thinks 2012 or any other year in the near future for that matter is going to be a good year for risk managers is trying to pull the wool over their own eyes.

Yes, rates in many lines will continue to be soft and drift lower in some cases but that doesn't mean that a risk manager's jobs will get any easier. The interconnections of a shaky global economy and systematic troubles in the U.S. workplace are going to make a risk manager's job just as tricky if not more tricky to perform.

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Risk managers who really care about what they are doing want to manage risk systematically. They want to alter dysfunctional behaviors and systems. They want to manage out organizational weakness, not just sign smaller checks.

But if you look at the state of the American workplace, what's going on is going to make their jobs much harder to do, not easier.

By the sheer size of premiums written, workers' compensation is the largest risk that there is. And in the U.S., medical costs in workers' compensation continue to scamper ahead at double-digit rates, driving up the combined ratios of the insurers that cover this risk to an average that looks to be in the 120's in 2012.

So what's a risk manager to do? Should they advise their company to increasingly self insure for workers' comp as the carriers retreat? Who wants any part of that risk?

Adding to the workplace dilemma for risk managers is that stubbornly high unemployment is starting to impact other areas of insurance besides workers' comp. We now see that wage-and-hour disputes and discrimination filings are on the uptick, to the point that insurance companies are starting to shy away from this risk and premium prices there are starting to rise, even in a soft market.

Global finance could also be in for another very rough year in 2012. Sovereign debt crises in Greece and Spain, and Italy could yet do more damage to European banks. It's one thing for banks and governments to work together to create solutions for these troubled governments and economies, but those very banks are going to be recording write-downs on bad debt for many a quarter.

Domestically, major financial institutions like Bank of America and Citigroup have still not been able to shake free from the mortgage losses that remain toxic due to a weak housing market and high unemployment.

Risk managers may enjoy the complexities of their jobs, but there jobs aren't going to be getting any easier in 2012 ... and you can take that to the bank.

DAN REYNOLDS is senior editor of Risk & Insurance®. He can be reached at dreynolds@lrp.com.

December 1, 2011

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