Risk Education In-Depth Series (Part 3): Sifting Through the Alphabet Soup of Designations
Have you earned your ARM (Associate in Risk Management), along with, perhaps, your AIC (Associate in Claims)? How about the gold standard--the CPCU (Chartered Property and Casualty Underwriter)? Since 1909, when the Insurance Institute of America opened its doors, insurance professionals have rushed to earn these designations.
The need for them arose back in the early 20th century, when few insurance practitioners had college degrees and they needed some proof of their insurance knowledge, according to the American Institute for CPCU and Insurance Institute of America, known by its acronym AICPCU- IIA).
Today, depending on your age, education level and perspective, you may not feel such a certification urge. The designations, except for the specialized ones, seem to have lost some of their luster because, outside of the insurance industry, executives don't necessarily know what they mean so they can't appreciate the value that supporters say is there. For example, in the financial services arena, an ARM is an adjustable rate mortgage.
About 12 years after the AICPCU started, it combined its resources with the IIA to form what's now the Goliath of designation conferring organizations--the American Institute for CPCU and Insurance Institute of America (AICPCU-IIA).
At last count, the organization conferred 20 designations, including three certification programs, from the INS (Program in General Insurance) certificate to the AMIM (Associate in Marine Insurance Management) designation, and everything in between. The AICPCU confers only the CPCU and the IIA confers all the others.
A little clarification is required here. The Society of CPCU acts as a dues-paying alumni membership organization for those who have earned their CPCUs, offering continuing education, insurance information, regular publications and ethics programs, plus other professional perks. It doesn't offer classes to earn a CPCU or confer designations like its sister organization. Both are located on the same campus in Malvern, Pa.
STRUGGLE FOR DESIGNATION
Most of these designations have been around for decades, but, as scores of risk managers are discovering in trying to implement enterprise risk management programs--the newest potential kid on the designation block--the Enterprise Risk Management (ERM) designation is still trying to make its way through the insurance lexicon jungle. In other words, it barely exists in the property/casualty world.
The IIA doesn't offer one. However, the Insurance Educational Association (IEA), which serves the West Coast and offers 20 designations and certificates, launched its Enterprise Risk Management Professional (ERMP) designation in 2006 and has since received a lukewarm response. It's the only organization to offer this particular certification.
"Actually we've only had five or six people complete the course and get the certificate," says Roy Little, the president of IEA. The students have consisted of one risk manager, two brokers, and the rest have been insurance company underwriters.
"Maybe we jumped on it a little too soon in developing it," he says. You can almost hear him shrugging.
Lance Ewing, vice president of risk management for Harrah's Entertainment Inc. and former president of the Risk and Insurance Management Society Inc., is one of IEA's risk managers who has earned his ERMP certificate. He heartily endorses the program's breadth.
"It's very good as we move away from the traditional risk manager to the more enterprisewide approach to risk," he says, which is why he spent six to eight weeks over a two-year period studying the materials, taking the quizzes, the midterm test and the final exam. It was all done electronically. And to Ewing it was all worth it because he believes the more you learn, the better you'll be at your job.
"If you can't challenge yourself you'll become stagnant."
He certainly hasn't been standing still, that's for sure. In addition to his ERMP he has earned his ARM, and his CRM (Certified Risk Manager) and CIC (Certified Insurance Counselor) from the National Alliance, where he's also an instructor for the CRM courses.
He also holds another CRM (Canadian Risk Manager), FRM (Fellow in Risk Management) and RF (RIMS Fellow)--all issued by RIMS' Global Risk Management Institute.
"At some point I'm going to have more letters behind my name than are in my name," he jokes. Or they won't all fit on his business card.
MBA, CPCU, OR PUNT?
That's not the case with another senior risk manager for a major financial services company who currently holds an ARM and master's degree in finance. "I think most of them (designations) are garbage," he says. This risk manager thinks such designations only play a major role at the lower positions because they give the holder more credibility.
He believes the major challenge of the professional designations is for companies to really understand what they mean, "and it's unlikely they assign great value without understanding the value," he says. He believes that's not the case with an MBA, and why he thinks it makes more sense than earning, say, a CPCU.
The argument between the value of a CPCU and an MBA, the risk manager adds, is a long-standing one.
However, Jim Britt, 2007-2008 CPCU Society president, believes an MBA is simply not enough.
"You should get your CPCU first and that validates your commitment to the insurance industry. Then you can go for your MBA," Britt says. Consider, too, if a company picks up the tab for a young employee to earn an MBA before the employee earns a CPCU, for example. That employee might simply use that MBA to jump ship to another employer.
Besides, Britt thinks the CPCU carries more prestige. He calls it the "highest credential in the industry" and it probably is, if for no other reason than it requires you to pass eight difficult courses, including the five foundation courses. That's why it takes people at least four to five years to complete the series and earn the designation. In contrast, the ARM only requires three classes on risk assessment, control and finance.
But do you have to have some kind of designation to get ahead in the insurance business? Ask Ann Mulholland, who's a senior casualty broker and director of public administration and education in the Chicago office at Aon Risk Services.
Mulholland is in an upper echelon position. She joined the brokerage firm in 1991 as an assistant vice president. Before that she worked for 10 years at Frenkel & Co. in New York and five years at Marsh in Cincinnati, following her education at the College of Insurance in New York.
"What's most important is a solid understanding of the coverage you're proposing to place," she says.
Risk executives can't fudge their way through an insurance program and have to know what they're talking about. Clients will see through the bluff quickly if risk managers lack a good grasp of the subject matter.
Mulholland's never earned a designation although she did almost complete the requirements for a CPCU.
But the accounting classes--not exactly her forte--coupled with lots of traveling for her job didn't leave her enough time to keep up with the studying. Despite that, certainly, her clients think she's good enough. She's been chosen as a Risk & Insurance® Education Power BrokerTM for each of the past two years.
VALUE DEPENDS ON SECTOR
The value of the insurance designations really depends upon which facet of the industry you work in. Most insurance companies are familiar with the designations so they carry a high degree of merit and those firms would be more likely to support employees and pay much of the expenses associated with taking the courses. The firms may even give you time off to study for your classes. And when you earn the designation, you may be in line for a promotion or raise. But if you happen to be a risk manager in another industry, say, food services, upper management might not pay as much attention to the insurance designations and think an MBA is more prestigious.
But perhaps the combination of a professional designation and an MBA is a better way to go. Rick Roberts, corporate risk manager at Ensign-Bickford Industries in Simsbury, Conn., and a RIMS board member, didn't start out in the risk industry, but did work on computer systems at Aetna. However, once he moved into risk management, his perspective changed.
"I didn't have a risk management background," says Roberts. So he jumped right into earning his ARM and CPCU.
"If you have no insurance background, it's helpful (to have those designations) because it's a decent chunk of the job," he says. He also earned his MBA in finance with a concentration in insurance and employee benefits from the University of Hartford, which he believes helped him with the financial sections of the CPCU courses.
"They encourage people to get their CPCU," he says, but in some cases it may not always be necessary and people can learn by just reading the information. However, he believes a financial education background is critical.
"If you have a financial background it gives you an advantage over those who don't. That's why I wanted to get that MBA." He says many major companies that are self-insured like that combination of knowledge, the legal and accounting information that a CPCU provides, which an MBA makes somewhat easier to achieve.
In other industries, more people are asking for and expecting managers to have earned an ARM, a CPCUs, or an MBA, says Roberts, especially for higher level jobs.
"It shows a dedication to your job," he says.
Allen Bova shows a real dedication to his job, having spent 20 years in the risk business, but that's not necessarily because he has a slew of designations after his name. As the director of risk management at Cornell University, he carries an ARM and an MBA in finance.
"The other designations give a certain amount of knowledge around certain topics, but that doesn't mean you can't acquire that knowledge in other ways, like from conferences and books. What helps more is the ability to communicate around the topic," he says.
"Because we're a large school we have a variety of different insurance policies that make us more of an expert than most brokers," he says. "We learned about all of them because we had to." Cornell has no less than 75 different policies plus all excess layers.
For example, he had to move a piece of equipment into Canada. "How many insurance brokers know you need a carnet bond that guarantees the taxes should you take the equipment back out?" A carnet bond allows equipment or merchandise to clear customs without payment of duties or taxes as long as there's a guarantee the merchandise or equipment will be re-exported within a year.
Leave it to the actuaries to not only create a new designation just a year ago, but to develop an ERM credential that makes ERM seem logical and clear while other industries are still struggling with the concept.
The CERA--or Chartered Enterprise Risk Analyst--is the newest designation to come on the market, but it's for actuaries only, and it's not even the professionals' platinum designation. The CERA is an international credential conferred by the Society of Actuaries.
Roughly 148 members have earned the credential, and the society's goal is to have 300 applicants signed up by the end of the year. That's possible because it's the only credential that gives professionals credit for their work experience, for regularly attending seminars and for emerging as thought leaders.
"ERM means different things to different people to a certain extent," says Mike McLaughlin, an actuary and global leader at Deloitte Consulting in Chicago, who also fills the roles of vice president/secretary/treasurer of the Society of Actuaries.
"Our view of risk is that it's something to be mitigated, but not necessarily to be avoided. It's an opportunity if you can quantify it," he says.
McLaughlin says that since 2003 SOA's board has been fielding interest from employers about enterprise risk management. The board discussed how ERM would make a good fit with what actuaries actually do. "There was a growing demand," McLaughlin says.
He explains that a few years back companies learned from experience when they hired risk managers without the right credentials.
"There wasn't a credential that made it clear that it dealt with this new science of ERM. As time has gone by, insurers, banks, financial institutions, or any other industry, have been looking for experts with the credentials that a chief risk officer offers, saying 'how do I know I'm hiring the expert I need?'"
When McLaughlin compares the CERA with the CPCU, he says, "We're training our professionals to look at a very broad range of risk but they're (CPCU instructors) looking to a particular kind of risk (property and casualty). Consider those risks, i.e. credit risk, operational risk, and reputational risks. For some there are lots of data; for some there's a lot of interplay. Clearly actuarial is the best way to quantify them."
He also points out two other uses of ERM--how much capital a company should allocate to a particular kind of business and when a company is divesting a business, which is measuring the different kinds of return.
But the property/casualty risk managers, underwriters, claims experts and brokers can't just sit back and let the actuaries pull the ERM expertise right out from under their feet. So expect the rest of the insurance education industry, probably the AICPCU-IIA, to come up with some acceptable version of an ERM designation within the next couple of years to add a major dose of prestige that can augment the CPCU.
"We recognize the need for practical, in-depth ERM education and it is something we are working on," says Steve Ryan, a spokesman, for the Institute.
SUSAN GUREVITZ lives in Philadelphia.
June 1, 2008
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