Play Ball

Play Ball

For most of the first half of the baseball season, my two highly paid New York teams--the Yankees and Mets--floundered around the .500 mark, despite both hiring new managers (the apparent panacea for poor player performance). Comments from the teams' powerhouse players indicated their intentions certainly were to crush the competition. Still, their actions came up frustratingly short. They hadn't yet found a way to turn their intentions into game-winning runs.

OK, back to insurance. A couple of surveys from Ernst & Young and PricewaterhouseCoopers brought this baseball analogy to mind. In findings from its "2008 Insurance Risk Leadership Survey," E&Y observes insurers' intentions regarding enterprise risk management (ERM) largely are in the right place but must overcome obstacles to reach full potential. According to the firm: "Insurers are optimistic about the future role of enterprise risk management. While ERM building blocks are in place, the industry faces significant challenges as it moves to the next level."

Results from PwC are similar. On the upside: "Insurers have made good progress developing and implementing ERM capabilities. . . . More than 90 percent of survey respondents have ERM programs in place." However, on the flip side: "ERM is, in many cases, neither relevant to nor clearly understood by business teams. It is not fully embedded into strategic decisions, and its integration into day-to-day decision making and frontline risk taking within many insurance companies remains limited."

Several compelling motivators, including the avoidance of financial disasters and pressure from rating agencies as well as company investors, are driving ERM. E&Y found while only 28 percent of insurers currently are using economic capital as a key performance measure, 90 percent anticipate implementing it within three to five years.

But along with drivers, there also are challenges: poor risk management information, siloed data, insufficient modeling capabilities, unclear risk ownership, and lack of business buy-in, to name a few. Another challenge is the current shaky economic environment, which may keep insurers from such projects.

Realistically, no insurer is going to rebuild its entire IT infrastructure to facilitate ERM (for more, see "Healthy Appetite," p. 14). Companies likelier may include ERM-related initiatives as a part of other projects. In bridging the gap between intention and action, those carriers with ERM in their arsenal will be able to team it with strategic planning, which will help ensure their competitive edge. Getting back to a baseball analogy, taking action by stringing together ERM base hit after base hit will enable insurance company teams to attain industry leadership. For those teams with only good intentions, there's always next season . . . or maybe not. Just ask the managers from last year's New York baseball teams.

Sharon S. Schwartzman