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Enterprise Risk Management: A Luxury We Cannot Afford
The risk management function can be transferred to capable service providers in lean times.
Companies are voting on the concept of enterprise risk management with their payroll dollars. That means they are cutting risk management staffs and by doing that they are cutting the capability of their company to engage in enterprise risk management. Tasks that might have been left to a hefty risk management department in better times are now floating back up the ranks to the treasury, if not the CEO.
What's behind this trend is the economic reality that there are only so many non-revenue producing functions that companies can house these days and still see net income figures in nice black numbers; numbers not bracketed by those soul-stopping parentheses that indicate a loss. What's happened to risk management budgets is the same thing that happens in some companies with advertising budgets in lean times. They must be cut because they can't directly be shown to produce revenue. Times are no easier for the carriers and brokers that engage with their clients to manage or transfer risk. Brokerages have cut staff in many cases to continue to produce returns for investors. Carriers are pinched by flat or soft pricing, mediocre investment returns and the fact there is only so much more releasing of reserves that they can engage in. But these economic times necessitate that this is also a time when the risk transfer equation and who bears responsibility for it is made more clear. Rather than expand risk management functions within their own organizations, insurance buyers are turning to their brokers and carriers and saying, "You manage this risk, that's what I'm paying you for." The head of a company who is engaged in his company's survival in 2012 is conscious that the decisions he makes impact just how many of his employees will still bring home paychecks to their families in six months, a year or in five years. Expansions of what comprises sound risk management or handing off responsibility for the company's survival isn't what he or she is putting their energies into now. It's not the practice of good enterprise risk management, or even good risk management; it's simply good management. DAN REYNOLDS is senior editor of Risk & Insurance®. He can be reached at dreynolds@lrp.com. April 13, 2012 Copyright 2012© LRP Publications |
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