Deborah Luthi, the enterprise risk manager of the San Francisco Public Utilities Commission, recently became the new president of RIMS (which publishes this blog). In the video interview below, which was conducted by AM Best, she explains the importance of ERM and the threats presented by climate change.
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The World Is Becoming a Riskier Place — But That Isn’t Always a Bad Thing for Companies
That the world is getting riskier should be pretty obvious to anyone who has been paying attention since 9/11 kicked off a horrible decade that included Enron, Katrina, the Great Recession, the Gulf oil spill and whatever it is that is going on right now in Washington, London, Southern Europe and on Wall Street.
Nevertheless, Property Casualty 360 has asked 36 risk professionals to answer the question: “Is the World Becoming a Riskier or Safer Place?”
I haven’t read all of the responses yet, but I have talked with most of these people in the past so I presume the consensus agrees that the world is riskier now than ever before. (In a business sense anyway. Indeed, the MAD threat during of the Cold War era was pretty … umm … risky back then. Black Death was also a little scarier than anything I can think of.)
Carol Fox of RIMS had a good take on the question, which (not surprisingly given her role here at RIMS, which, if you didn’t know, is the organization that pays my salary) shows a more nuanced outlook that notes the strategic advantages that risks can provide.
There is much more uncertainty given the complexity and speed of change in today’s world than was the case 50, or even 20, years ago.
buy topamax online https://silvermancare.com/wp-content/uploads/2023/10/jpg/topamax.html no prescription pharmacyThe key is to understand that risk isn’t only to be avoided or mitigated. Risks are to be understood in light of an organization’s objectives for their relevance, importance and certainty so that the known risks that can “improve our position” can be exploited, and those that can “worsen our position” can be managed. Those risks that are most uncertain, whether known or unknown, become the basis for scenario planning, so that the organization can consider them in light of its overall strategy, as well as its future resilience and sustainability planning.
As is too often forgotten, without risk, there would be not opportunity. If producing oil and distributing gasoline were risk-free endeavors, every company would be Exxon. If investing in the creation of revolutionary technology to leverage the death of non-digital music carried no downside, every company would be Apple.
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Risk isn’t always bad for companies.
Head over to PC360 for the other 35 responses.
Excellence in Risk Management
The Great Recession is not known for inspiring great things, but it did spur the creation of the Dodd-Frank bill, which, among many things, created the Financial Stability Oversight Council and the Federal Insurance Office. And the near-collapse of the U.S. economy did wonders for the discipline of risk management.
As a result, according to a new survey from Marsh and the Risk and Insurance Management Society (RIMS), executives in the C-suite are expecting much more from the risk managers at their company.
Below are a few of the key findings from the report:
- An overwhelming majority of respondents said that senior management’s expectations of their organizations’ risk management departments have grown over the past three years. Senior management’s list of desired changes from risk managers includes integrating risk management deeper with operations, executing daily risk management activities more efficiently, providing improved analysis and quantification, and leading enterprise risk management (ERM) activities.
- The most common focus area for 2011 is strengthening strategic risk management, which was cited by more than half of survey respondents. For the second year, this area came out on top, although barriers to doing so remain.
- The top barrier cited to senior leadership understanding of the risk landscape was silos within the organization. This is the same answer given in prior years, and is something that organizations should begin to confront if they have not already done so. One way to tear down the silos is to create or strengthen cross-functional risk committees.
- As the role of chief risk officer (CRO) continues to develop, we are beginning to see some differences in how they view and prioritize the issues. For example, CROs were much more likely than other risk managers to categorize senior management’s change in expectations a “very significant.” CROs said strengthening ERM capabilities and integrating ERM into strategic planning were focus areas for 2011.
- Economic conditions ranked as the number one risk among respondents, and was also the risk that they were least comfortable with their organizations’ ability to manage. In other areas, such as business disruption, risk managers and the C-suite are not as aligned in their views of how prepared their companies are to manage the risk.
- Nearly 60% of companies said their use of data and analytics has changed over the past three years. This is likely a reflection of leadership’s desire for there to be more transparency and quantification around risk decisions, particularly the economic implications. Despite the stated changes, however, there appears to be a need for companies to better use the available tools and analytics.
And let’s take a look at the areas in which senior management’s expectations of the risk management department have grown:
It seems the financial crisis continues to shine a light on the importance of risk management as a whole and, more specifically, enterprise risk management and strategic risk management.
RIMS President Urges Members to Give to Japan
As stated on the RIMS homepage, the Risk and Insurance Management Society’s president, Scott B. Clark, is urging members to give to Japan as the country works to slowly bring itself back to pre-earthquake and tsunami status. Clark was in Japan when the quake hit and felt first-hand the power of mother nature over seemingly helpless humans.
When the earthquake hit, I was in Tokyo, having just arrived to attend the Japan Chapter of RIMS’ annual meeting. My partner, Peter, and I were with Yoshi Hamaji, president of the Japan Chapter, when the quake struck and at the time, we didn’t realize the extent of the tragedy. As we were able to receive news updates and the true extent of the devastation became clear, it was difficult for us, as for the rest of the world, to comprehend.
Experiencing such a tragic event would touch anyone on a personal level, as it has Clark. Feeling the need to do something about it, he has asked each RIMS chapter to match his chapter’s (RIMS Greater Miami) donation of $1,000 to the American Red Cross’ relief efforts in Japan.
Click here to read more of Clark’s writing about his experience in Japan and his call to action.
Click here to go directly to the American Red Cross donation page.