Canadian Underwriter
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Risk Management: Changing Times


September 1, 2003   by Canadian Underwriter


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Virtually every risk manager I have contact with is saying the world of risk management has changed dramatically,” says Glen Frederick. In his role as co-chair of this year’s RIMS Canada conference, dubbed “Changes 2003”, Frederick says there is no shortage of “hot topics” on the minds of risk managers. Most recently, the “Blackout of 2003” that hit southern Ontario and the northeastern U.S. in mid-August, and the forest fires that continue to rage through western Canada, have challenged perceptions of risk in this country. But, long before these events, risk managers began contending with the changes brought on by the hardening of the insurance market, and the menace of corporate scandals from Enron to WorldCom. “The things that have created real change in recent months are the insurance market and corporate governance,” says Frederick.

Corporate conscience

The corporate governance arena has seen a new concept of “corporate conscience” emerge. This has been both beneficial and a bane to the lives of risk managers. The introduction of the Sarbanes-Oxley Act, with its new rules for corporate governance has been a major project for many Canadian risk managers, explains Frederick’s fellow conference chair, Anne Chalmers. With so many companies having a presence in the U.S. either through equity listings, U.S.-based subsidiaries, or trade, the legislation’s rules on disclosure and conflict of interest cannot be ignored. “It [the legislation] is giving corporations “X” amount of time to get compliant,” she says. But in formalizing rules and processes, “it’s helping us.” On the other hand, Frederick notes, “it’s a ton of work.”

Overall, the corporate governance issue has had a positive effect on risk management as a profession. “The profile of risk managers has been raised,” says Frederick. “Many risk managers are finding themselves in a position where three or four years ago they really had to ‘sell’ their profession within the corporation. Now, everyone realizes who the risk manager is.”

It has also brought about “enterprise risk management”, something risk managers have been pushing for, into focus at the top corporate levels, he adds. “ERM is one of the tools to better corporate governance.” He adds that, “shareholders’ awareness of risk has grown since Enron. Now, in the U.K., the risk management strategy is even part of each corporation’s annual report.” Many risk managers have also pointed out that managing change in their companies in the face of corporate governance, disclosure and compliance has become a hefty challenge, Chalmers points out.

Relationships

While the RIMS Canada conference acts as an educational venue for risk managers, it also has a significant role as a meeting place for insurers and risk managers, as well as a venue for the profession to explore alternatives to insurance. This role has taken on even greater significance as the hard market lingers. “The role of purchasing insurance has changed so much, it’s really become only a small part of the job,” Chalmers says.

In the wake of decreased availability of insurance, and rising rates, many risk managers are turning to increased retentions, self-insurance and other risk transfer vehicles to meet their exposures. “I don’t like to use the term insurance,” says Frederick, “it’s risk finance now.” This has represented a change in risk managers’ views, he notes. “It’s a shock to people. People didn’t spend a lot of time on how they finance risks.” During the soft market, which lasted from the late 1980s right through to the new millennium, insurance was affordable and abundant, and risk managers had little need to seek out alternatives.

Now, risk managers, and those they report to, are clamoring for information on alternative solutions. “As risk managers, you have to be on the leading edge of knowing what tools are there,” Chalmers observes.

The lure of the alternative market should be a warning signal to insurers, Frederick points out. “The perspective insurers should have is that once those people leave [to go to alternatives], they won’t likely come back.” Once a corporation has gone through the pains of establishing an alternative risk transfer solution, such as a captive, they will stick with that solution even when the market begins to soften again, he adds.

In this respect, the conference is a chance for insurers to repair relationships and to meet with clients to help them understand the pressures insurers are dealing with, specifically when it comes to pressure from shareholders to reduce losses and return a profit, something risk managers can relate to. “That [kind of understanding] really only gets achieved when the risk manager meets face-to-face with the insurer,” Chalmers says.

“Many of the risk managers have a feeling of being let down by the insurance community,” Frederick points out.

Furthermore, Frederick says that, “an interesting comment I heard from an insurer is that they all of a sudden have clients coming to them looking for loyalty, when during the soft market, those clients were jumping from insurer to insurer”. Risk managers who were “price shopping” during the hard market may also find the conference is a venue to tout their programs to insurers and do some relationship recovery of their own. Amidst an environment of price hikes, alternatives and risks managers trying to cover risks in the most appropriate and affordable manner, decisions are “at times, coming down to a relationship,” Chalmers notes.

Different sectors

Just as the conference seeks to bring together risk managers from a variety of fields, Chalmers and Frederick bring diverse backgrounds to the picture. She has been with Teck Cominco, a mining, smelting and exploration company, for 18 years and is now director of corporate risk and insurance. Among her responsibilities are global risk management, commercial insurance, loss control, emergency preparedness and crisis management. In her spare time, she is a director of The Weaver Institute which helps educate and promote entrepreneurial skills among street kids in Brazil.

Frederick, as with about one quarter of the conference attendees, comes from the public sector, where he is manager of consulting and advisory services with the risk management branch of the Government of B.C. His role includes developing client risk management strategies for external contractors and delivering self-insurance programs for various government departments and programs. Implementing ERM within the government environment is another focus. His career in risk management has spanned 18 years.

Both have a significant involvement with RIMS, with Frederick being vice-chair of the RIMS Canada Council and a CRM course instructor, and Chalmers as vice-chair of the council’s national conference and education committee. Both of the conference organizers say their priority for “Changes 2003” is a diverse educational experience to meet the needs of membership – those working for private and public entities, veterans and newcomers to the professions.