Canadian Underwriter


April 1, 2001   by Vikki Spencer

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At the recent Ontario Risk Management and Insurance Society (ORIMS) professional development day, a host of speakers expressed the need for expanding the knowledge and influence of risk managers in the corporate structure. With new approaches to risk financing and control at their disposal, today’s risk managers have a key role to play in both public and private enterprise.

What risk managers know, but companies may have yet to understand, is that this is a profession of many hats. From risk control to risk financing to insurance buying, the modern risk manager can play an important part in a corporation’s overall business and financial strategy. Delegates at the recent ORIMS professional development day learned that with the help of emerging risks, and new approaches to risk management, the profession is poised to assume a greater role in day-to-day corporate operations.

Cat management

Risk managers need to gain credibility within their organizations, says Sue Meltzer of Sun Life Financial Canada. The recent financial catastrophes involving public companies helped to bring risk management into the spotlight for her company, with fear playing a big role in the risk management team’s rise to prominence there.

The threats of lost marketshare and market capital, as well as increased regulatory pressure resulting from a financial upset make managing these risks especially important for public companies. And there is no reason this fear should not be a means of promoting the profession, she admits. “The gentle approach won’t work” and fear can be leveraged to get other departments in a corporation to work with its risk managers.

At Sun Life, Meltzer says each business unit is accountable for identifying risks. But a transition in thinking may be necessary for some companies. Actuaries tend to focus only on the quantifiable risks, and financial services companies in particular are having to come to terms with operational risks rather than purely financial ones. In an area such as meeting insurance coverage requirements, which are seen as “irritants” to other business units, risk managers can show their value in guiding this process. “We sell a risk management philosophy”, a philosophy all business units must buy into for risk managers to operate successfully within the organization.

Customer service

A catastrophe of sorts brought risk management into the limelight for Sears Canada, when a roof at one of the retailer’s stores collapsed, says Steve Kelly, Sears’ general manager of insurance and risk management. Also, new services, including the growth of online retailing, have brought new liabilities and put further emphasis on the risk management function. “We’re a merchant who sell socks, not an insurance company,” he says. The risk management team took this to heart and now focuses its energies on how they can add value to the company’s drive for customer service.

One step was the centralization of claims activity, so that when a customer is injured at a store the risk management department is informed even before a third party administrator is brought in. Previously, “we would never know about it [an incident] until the serious injury happened”, making risk control reactive rather than proactive. In Kelly’s example, risk managers were challenged to ask, “if it doesn’t serve the customer, why do it?” As well, third party administrators should be rewarded for their customer service abilities. Those that go the extra distance to ensure claims are handled in a way that keeps customers happy should see a financial benefit from this. A practice as simple as calling a customer within 24 hours after an accident at a store shows that the risk management process can be an asset to the company, rather than merely an expense.

Another key is to stop treating risk management as an impediment to business ingenuity. Risk management should become an enabler for other business units, where ideas are not rejected outright, but a “how can we accomplish this?” approach is taken. As Kelly paraphrases, “we would never have gotten to the moon if someone had consulted a risk manager”.

Cost control

Risk managers can provide further value to their organizations by finding new ways to control costs. With insurance rates on the rise, it is perhaps more important than ever to focus on risk control and cost effectiveness.

Keith Shakespeare, COO of the Canadian Universities Reciprocal Insurance Exchange (CURIE), relates how his organization has tamed insurance costs by dealing with reinsurance and excess markets in five-year cycles and taking on a high level of risk retention. “Not having to negotiate a renewal this year has saved us a lot of heartache,” he says, in light of the rate hikes being experienced in both primary and reinsurance markets brought on by poor results. “We are looking for long-term, stable partners.”

Risk control is also an important issue, and Shakespeare says his practice is not to hesitate in calling in legal counsel to review such things as research contracts covered by CURIE. The aim is to avoid assuming any unnecessary risks that could bring about a hefty claim later. Another new project is the institution of training programs to reduce loss, for example CURIE’s school van driver training initiative.

But perhaps the most important control process for risk managers is to carefully review past claims. Throughout the adjusting process, Shakespeare says, it is important to maintain a dialogue with not only those primarily involved, but all parties falling under the organization’s umbrella. The best practice for controlling future risks could be ensuring the mistakes of the past are not repeated.

Budgeting losses

One thing all companies can count on is that losses will happen, and despite the best risk control efforts, those losses will have to be covered financially, either through insurance or retention. Many risk managers are now looking at alternatives to insurance buying, including keeping that risk on the company’s books through self-insurance. “Self-insurance programs are becoming more and more complex and deductibles are getting larger,” notes Claire Cameron, consultant with Analytics. Risk managers play a delicate financial game in trying to negotiate lower rates on low deductibles and assessing their company’s ability to retain risk on high deductibles.

The role of the risk manager, even in the budgeting process, has moved well beyond mere insurance buying. Risk managers are challenged, through self-insurance, to assess their company’s ability to cover retained losses, including looking at reserve adequacy from past years. Budgeting for self-insurance becomes a question of planning, Cameron notes, with the possibility of reserving for an average year or a worst-case scenario. “That’s going to depend on your company’s aversion to risk…what is their appetite for risk?”

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