Independent agents are no strangers to client turnover, but they may need to make some special effort to prepare for a whole new breed of corporate client: the chief risk officer (CRO).
ENTERPRISE RISK MANAGEMENT
This new breed of executive will require agents
to help them plan for an enterprise-wide view of risk
By Len Strazewski
Independent agents are no strangers to client turnover, but they may need to make some special effort to prepare for a whole new breed of corporate client: the chief risk officer (CRO).
As large and medium-sized businesses move toward a broader sense of managing risk across their entire operational enterprise, they are also creating a new breed of multi-disciplined executive to execute the evolving enterprise risk management (ERM) approach, explains Alan Driscoll, senior vice president and manager of risk management services at the Chubb Group of insurers in Warren, New Jersey.
This new executive not only will have broader corporate responsibilities for managing new and old forms of risk but will tap a broader range of strategic, financial and insurance-related resources to manage his or her enterprise-wide plans, Driscoll says.
And he or she will probably demand more insight, expertise and product knowledge from agents and brokers in order to make more sophisticated choices from among legal, financial, alternative risk financing and traditional insurance methods for managing exposures to loss.
"The chief risk officer won't be replacing the traditional risk manager at large corporations or the insurance buyer at smaller companies. Those executives will still have an important role in managing the use of traditional insurance products and likely will still be the major point of contact for agents and brokers," he explains. However, the CRO may be analyzing and managing other kinds of risks as well as traditional property/casualty-related exposures that may affect the use of insurance and alternative risk financing products, he notes.
"More likely, the CRO will be examining the company's exposure to commodity pricing as part of its overall supply chain, international currency fluctuation as part of its financial transactions with customers and suppliers and methods such as financial and market derivatives to offset those kinds of exposures" he says.
"Obviously an agent can't become an expert on all of those techniques and solutions, but as an ERM strategic plan may include a broad range of resources and traditional and nontraditional products, an agent will have to be aware of a broader range of tools and be ready to bring to the mix the resources their insurers can provide to the overall ERM strategy.
"Agents will have to be part of a team or, in some cases, help create a team of resources to help execute the broad ERM strategy," he says.
ERM is a particularly hot topic at Chubb, which planned to appoint its first chief risk officer before the end of the first half of this year. And in the wake of the September 11, 2001, terrorist attacks in New York and Washington, Chubb Chairman and Chief Executive Officer Dean R. O'Hare has also been aggressively promoting the ERM concept to agents, brokers and corporate buyers and suggesting that corporations respond to the disaster with new commitment to enterprise-wide risk awareness.
At the Risk & Insurance Management Society annual conference in April, O'Hare encouraged corporate insurance buyers to advise CEOs and directors about protecting operations, employees and corporate assets from terrorists and other catastrophes. He called for more traditional risk managers to be prepared for what may be the next step of their corporate evolution.
"Risk managers are no longer just an expense item on the corporate income statement," he said. "They are absolutely vital to protecting the continued viability of the enterprise. This is the chance for risk managers to earn a seat at the senior management table by supplying the wisdom and guidance that only they can provide," he said.
O'Hare also called for corporate risk managers to push the concept of a CRO who would have the responsibility and authority to cross over departmental and operational barriers or "silos" to explore and manage a broader range of business risks.
"There is substantial overlap among many risks, yet in most cases, risk managers are not responsible for managing risk across an entire enterprise," he said, noting that informa-tional technology, security, finance and other managers are responsible for addressing other exposures.
"Managing risks in silos is inefficient and costly. Even more frightening are the risks that fall between the silos, unnoticed, leaving the organization severely exposed," he said.
O'Hare offered 10 specific recommendations for risk managers:
* Create an enterprise-wide risk management program overseen by
a CRO.
* Establish a risk management council to develop policies and procedures to minimize risks across the enterprise.
* Make risk management an important thread within the corporate culture.
* Understand the organization's interdependence and the effects a disaster may have on its key vendors.
* Share information on threats and best practices with others in the industry and across industries.
* Reach out to peers in other companies and encourage the CEO to do the same.
* Partner with government and law enforcement in threat-identification and disaster planning efforts.
* Think out of the box when identifying threats.
* Become more proactive in managing risk by creating and implementing procedures before, rather than after a disruption occurs.
* Develop a crisis management and disaster recovery plan that establishes clear lines of authority and continuous communication with employees. Test the plan annually, if not more frequently.
O'Hare also noted that while risk managers and CROs can do more than they are already doing to deal with evolving exposures and catastrophic risks, they still need to pay attention to insurance, which plays a vital role in sustaining organizations when disasters occur.
"At any moment, many organizations may find it difficult and, in some cases, impossible to put their disaster plans into effect, survive a prolonged period of business interruption and rebuild should a terrorist incident occur," he said.
O'Hare also called for Congress to enact a federal terrorism insurance program to provide support for companies and the U.S. economy in case of another major terrorism incident.
What can agents do to better prepare for the arrival of a CRO? Driscoll recommends that agents explore the range of services already available at their insurers and how those services are starting to be tapped for ERM strategic use. Chubb Financial Services, for example, provides alternative financial management products that extend beyond traditional property/casualty insurance products.
"Agents may be in the best position to offer new options and products to their clients as their clients come to under-stand their broader range of risk--but agents need to be aware of what their insurers offer and how the new products and services work," he says.
Agents also need to improve their understanding of alternative risk financing tools such as captive insurance companies, risk pools and other self-funding techniques which may have an expanded role in
ERM strategies.
Also, Driscoll noted that agents might have the opportunity to initiate ERM at their small to medium-sized clients. Agents tend to be more aware of their clients' exposures than many of their executives and may be able to identify opportunities for better management of those exposures,
he says.
Driscoll suggests agents take additional steps to analyze their clients' nontraditional exposures such as the impact of commodity pricing, currency fluctuations, weather hazards and other business risks and be prepared to offer advice and referrals. *
The author
Len Strazewski is a Chicago-based freelance writer specializing in marketing, management and technology topics.