In talking to the risk managers, brokers and insurers populating RIMS 2009, there are two themes that run constant. The first is the unique opportunity that last year’s financial meltdown has presented risk managers to raise their profiles within their organizations and prove their value to senior management. Finally, after the onslaught of calamities of the past decade — September 11 then Enron then Katrina — the economic crisis seems to be the final straw in forcing boards of directors to understand the importance of risk management.
Conversely, however, is the other reality of the economic crisis: Few companies have the resources to devote to non-revenue generating endeavors. So while many risk managers may be getting heard by the board for the first time and receiving the encouragement they have always desired, they are not always getting that support in the form of resources.
For insurers, the predicament is different — yet similar.
Given the economic climate, there must be a return to underwriting discipline. Earlier today I spoke with Bob Petrelli, who is a managing director in Swiss Re’s insurance division, and he emphasized this need. “Last year’s crisis has shown us that you can’t put all your faith in your investments,” he said. “You need to have that underwriting discipline.”
But, obviously, this is easier said than done, and even though we’re seeing signs of a return to the hard market, many insurers have been unable to actually stick to their guns and practice what they preach. “If everyone would do what they say they are going to do, we would see a hardening market,” said Petrelli’s colleague at Swiss Re, Nikolaj Beck, who is also a managing director on the company’s insurance side.
But more so than simply tightening prices and limiting exposures, both Swiss Re’s executives as well as those I spoke with at Zurich stressed the need for innovation. Given their market footprints and name brands, neither company likely needs to worry about coming out of the economic crisis in good shape. But each seemed hopeful that when the turnaround does occur, they will not only emerge comfortably, but with a distinct competitive advantage in their markets.
Zurich, for instance, has recently released a new D&O policy it is promoting at RIMS 2009 that it hopes can set a new standard for coverage. By enhancing some aspects of its Side A coverage for individual directors (including retired directors) as well as including an extension for “environmental mismanagement claims” resulting from climate change retaliation claims, the company is hoping that this type of innovation will differentiate it from a marketplace where many of the players are content to just tread water. The goal, according to Zurich chief innovation officer Ty Sagalow is “raising the bar in D&O.”
And, thus far, the feedback he’s received is encouraging. “One broker’s response was ‘It kicks ass,'” said Sagalow. Sagalow was particularly committed to such forward thinking in the realms of climate change and globalization-related risks still on the horizon — like those supply chain risks that the recent spike in piracy off the Somali coast are illustrating far too often — and is trying to find a good balance between those things that policyholders are asking for and those things that his team has identified as the emerging risks affecting all organizations.
“Whether it’s a soft market or a hard market, it’s always a market for customer-centric innovation,” said Sagalow. “When we go to [our clients] and tell them we’re responding to their needs, they are very receptive.”
Swiss Re, too, sees a balance between innovation and underwriting discipline as a cornerstone of its strategic future. And as one of the most technically advanced companies in the market, it believes it has the ability to do both. The company executives are hoping risk managers looking for better coverage at better prices in this tough economic climate will come to them with better information about their specific risks to help the underwriters placing the coverage. “We have the technology and expertise to take that information and use it to better understand and price the risks an individual company faces,” said Nikolaj Beck.
Of course, it may seem easier for giant, multi-billion-dollar insurance companies to find opportunities to increase their profile and market value in this current environment than it is for a solitary risk manager to raise organizational awareness about his discipline and get more authority. But those opportunities do exist. Risk managers need to find them and, more importantly, take advantage of them.
For those still struggling to be heard, Bob Petrelli of Swiss Re at least has a few words that may give some inspiration. “The boards of directors know who their risk managers are now.”
That may not sound overwhelmingly encouraging on the surface, but it’s a start.