ERM becomes big business

The incredible complexity of risk for large, multi-national companies is driving managers and board to embrace enterprise risk management (ERM), A.M. Best notes, although ERM techniques often require incomplete data and board-level commitment that isn’t always there.
Speaking at the 42nd annual seminar of the International Insurance Society in Chicago, Gregory C. Case, president and CEO of broker Aon Corp., said risk advice, or analysis and proposals on how to address enterprise-wide risk, is part of Aon’s business and is becoming a big business.
Last year, an estimated $25 billion was spent on risk advice, A.M. Best notes in its report on the Chicago seminar.
“The leverage of risk advice is astronomical,” A.M. Best quotes Case as saying. “The need for it is very high.”
Stephen W. Lilienthal, chairman and CEO of CNA Financial Corp., said his company’s chief risk officer reports directly to him. Also, the company has an ERM committee that includes representatives from every operation.
“ERM needs a culture that includes attention from the top,” Lilienthal said. “I can lose a decade of profit on a two-hour event in Florida, so I need to be able to convert earnings into value for the company.”
Enterprise-wide risk covers every conceivable operation of a company, Lilienthal said. For CNA, the risks include terrorism, natural catastrophe, disease pandemic, data breach, interest-rate changes, regulation and investments, among others.
In addition to commitment from top management, a good enterprise risk mitigation program requires strong data, Lilienthal said. “Trying to coordinate and aggregate all of these things is tough,” he said.
Terrorism as a risk, for instance, brings with it no solid data for insurers to calculate their exposure, A.M. Best notes. “For natural catastrophe risk, data are pouring in, confirming the realization that the risk is much greater than once thought.”