Risk managers cautioned against “over-treating” risks

Risk managers should be careful not to “over-treat” their company’s risks, panelists told an Ontario Risk and Insurance Management (ORIMS) seminar in Toronto on Jan. 12.
Panelists defined “treating” risks as modifying the source of risk, as opposed to controlling or mitigating the risk. For example, fastening a seat belt or installing a baby seat in a car will modify the risk of being thrown out of the front window in a crash.
Risk managers need to beware of treating an ever-expanding list of risks, without looking back to see whether some of those risks have changed or the treatments can be rescinded, the ORIMS panel heard.
“If you are charged with looking at treating risk in a more mature organization, something you should look at is the [possibility that] you are over-treating your risk, said Cathy Taylor, the head of risk management for ADP Canada, a provider of employer services. “Sometimes we get so focused on adding on [treatments], and [allocating] resources and capital to dealing with the risk, we forget to look back and see whether maybe something has changed. Maybe we can pull off some of the controls or activities and allocate those resources and the money spent on controls somewhere else.”
She referenced a generic risk map or matrix that risk managers might use to plot their risks. The map might have red zones, representing the most dangerous risks to the company, yellow zones for medium-level risks and green zones for risks about which the company is not particularly fearful.
“Let’s say there was a risk plotted on there that inherently was very high, in the red zone, and then you controlled it so it was down in the green zone,” Taylor said. “But [re-examining the company’s] appetite and tolerance, your executives are saying: ‘We can live with [that risk] being in the yellow zone. Then maybe it’s time to pull off on that controlling activity and let it go back up to that yellow.”
Removing a number of treatment techniques might mean reducing the deductible [thus lowering the insurance premium], or removing a procedure in place.
“That risk is still in a manageable level, but not as low as it used to be,” noted Taylor. “You’ve probably saved some costs by reducing the deductible and freed up time and effort.
“Don’t just add on: Take a look at the risk and see if you’ve got too much treatment on there already.”