Risk Management

Are Risk Managers Missing the Boat?

With CFOs taking responsibility for captive insurance and other risk functions, some question the future of risk managers.
Caroline McDonaldOctober 11, 2012

Lately I’ve talked with two risk management experts who expressed their disappointment in the direction many in risk management have taken—or they might say lack of direction.

One risk management and insurance industry expert was explaining that captive insurance companies, corporate subsidiaries formed to insure certain corporate risk exposures, are now largely overseen by CFOs. Risk managers typically do lay the groundwork, talking with captive managers, looking at feasibility studies and captive domiciles, and deciding the benefits of locating onshore in the United States, or offshore in countries like Bermuda or Cayman.

But, he says, no decisions are made until the CFO looks over the information and gives his or her approval. This expert, Andy Barile, notes that he wrote a book years ago that specifically pointed out a direction for risk managers that would boost their corporate status via captives. Barile says that even in the early days of captive insurance it was evident that they could be more than a vehicle for hard-to-place risks. They could also be profit centers, with money saved on underwriting and services as well as tax advantages. Risk managers, however, didn’t take the initiative, he says.

Another expert that I spoke to today makes a similar observation. He notes that many risk managers are still functioning as insurance buyers, although they could be in more strategic positions within their organizations.

Instead of embracing enterprise risk management, he says, they have become comfortable in the narrower world of insurance buying. He also points out that because insurance is just one way of offsetting risk, risk managers are limiting their roles within the organization.

I’m also reminded what presidents at the Risk and Insurance Management Society have been saying for years—that risk managers need to be broadening their base, furthering their education and preparing to move upward by leading the way, rather than waiting for a direction. Now they are also vying for oversight with internal auditors, who more and more are given the lead in overseeing risk.

RIMS leaders have warned that by holding onto the status quo, risk managers would lead the way for others—exactly what Andy and other risk experts are observing today. These RIMS leaders also have made ERM a priority, offering more and more sessions at their major annual conference—and now an annual conference devoted to ERM

So there are no excuses for risk managers to hold back. Boards of directors are asking for ERM in their companies and ratings agencies more and more are requiring it.

There are also many avenues for furthering risk education. There are also a number of extremely bright professors who are well aware of the trends and issues in this field. The time for action is now.