Finance chiefs want more out of their risk managers than mere property-casualty insurance buying, even though risk managers themselves place a high value on their knowledge of insurance coverage, experts say.
Yet while corporate risk managers have long been identified as mere policy purchasers, this perception may be changing as executives of organizations are looking for a more strategic risk-management approach.
In examining the role of risk management in an organization’s strategic-planning process, Brian Elowe, a managing director in the global risk-management division of Marsh, the big broker, noted in a webinar that risk managers have been able to move beyond a stereotypical role as insurance purchasers to become more strategic within their organizations. He cited “Excellence in Risk Management IX,” a study released this spring by the Risk and Insurance Management Society Inc. (RIMS), and Marsh.
When asked about the key abilities required to lead a company’s risk management, CFOs and other C-suite executives did not identify insurance knowledge as one of them. In fact, only 25% of executives surveyed saw this as a priority, compared with 37% of risk managers.
There were 1,322 survey responses: 58% were risk managers, 15% were members of the C-suite, and 27% were other executives.
According to the study, the top requirement to lead risk management is an intimate knowledge of the company’s business and the industry, with 67% of C-suite members in agreement, compared with 63% of risk managers. The second priority is having a strategic view of risks and risk management’s role, with C-suite and risk managers agreeing at 64%. They also agreed on the third top point, that risk management should have a broad-based operational perspective. C-suite members and risk managers both weighed in at 35% on that question.
Tim Mahoney, president of Marsh’s global risk management division, observes that while both groups were similar in their view of the top requirements, the survey’s message “is pretty significant. It shows that senior management is looking for something beyond the risk purchasing from the risk-management function.” This doesn’t downplay the importance of procuring insurance, he adds, but it shows that “everything needs to be looked at from a broader, strategic perspective.”
Company executives are looking for and expect strategic thinking from risk managers, Elowe says. But many “are either not receiving, or not understanding, the critical and relevant strategic connection points. The implications for risk managers and the risk-management function are quite serious,” he says.
“The good news is that many organizations are integrating risk management deeply into their strategic planning,” says Elowe, adding however, that in a number of organizations, “opportunities still exist.” In other words, risk managers need to recognize the growing need.
In fact, 51% of the C-suite surveyed also believed risk issues could be better integrated by adopting a formal strategic risk-management process, compared with 45% of risk managers.
Carol Fox, director of strategic and enterprise risk practice for RIMS, describes strategic risk management as a “business discipline that drives deliberation and action regarding uncertainties and untapped opportunities affecting an organization’s strategy and execution of strategy.” Strategic risks, she says, are those that pose a threat to a company’s ability to execute its overall strategy and that dominate the list of concerns for a number of companies. In many cases, she says, companies don’t have a structured framework for identifying or managing these risks in the context of strategic planning and execution.
Strategic risk management, Fox explains, can potentially identify situations in which risk can be a competitive advantage.