Southampton, Bermuda

With the top concern for risk managers being the impact of theeconomic slowdown on their organizations, corporate buyers shouldexpect very tight scrutiny of any dollars budgeted for insurance,loss control and support services, one consultant warned.

“They must look at whether a solution is driven by compliance,or if it will bring additional revenue or return on investment,whether it's from safety, or loss prevention services to riskmanagement,” said Christopher Iovino, managing director for riskconsulting, risk control and claims with Aon Global in New York,addressing a seminar at the Bermuda Captive Conference.

Mr. Iovino cited the results ofAon's “2009 Global Risk Management Survey,” which found theeconomic slowdown topping the list of the most challenging riskscited by risk managers. The economy registered as theeighth-biggest concern last year, he noted.

The survey also found more pressure on risk managers to deliverresults with fewer resources, and that risk managers are finding itdifficult to remain committed to established, effective riskmanagement strategies, which affects all other risks cited.

Tough choices will need to be made as budgets are prepared andrevised to reflect the impact of the recession, he said, suggestingthat risk managers might have to pick between spending theirlimited risk management budget on a new IT system or to reducelegacy claims–but not both.

He said risk managers are turning over every stone to savemoney, suggesting that one way is to examine recommendations madeby insurers based on engineering. “Although it's not necessarilytop of mind, sometimes when risk managers see the lists andrecommendations, they intuitively feel, 'I need to do this becausethe insurance company is telling me to do so.'”

However, with a little more education and awareness, Mr. Iovinosaid, “they can stop the bus for a minute and truly analyze thesize of the risk and how it impacts their program in the marketgoing forward.” Risk managers then can determine whether the sameresult can be achieved for less capital expenditure, heexplained.

While this concept may seem simple, he said risk managers oftenaccept insurer recommendations, when “whether it's a half-millionor million-dollar sprinkler system improvement, sometimes there areoptions.”

In another area, he said, “we can really show the benefit ofbetter data, better analysis.” He said clarifying and strengtheningan organization's loss control from a business interruptionperspective “will impact how the market views their risk and howmany risk transfer, risk finance issues they have to consider.”

The fact that risk managers are taking fresh looks at theirrisks and expenditures is “a good thing,” he said, “because ifwe're impacting one element of the total cost-of-risk equation, Ithink the risk manager can sell that a lot easier than some otherthings, like strategic thinking in three-year plans.”

With the way the economy is struggling, he added, “I don't knowif they can get their hands around 90 days in advance, let alonethree years in advance.”

The issue buyers are dealing with is: “When's the next quarter,and how am I being evaluated?” he said, noting that in today'sworld, risk managers need to “be more than just transactional andmore than just an insurance manager.”

What's needed is “the true risk manager,” he suggested, addingthat “we're seeing some organizations gravitate to the chief riskofficer [position].”

Looking back just five- or 10 years, he observed, risk managersdid not concern themselves with enterprise-wide issues such assupply chain exposures to the extent they do now. “If you're asmart risk manager, you'll be looking at the whole gamut of risksand not put yourself into that silo,” he noted.

He added that in this difficult economy, decisions shouldn't bebased just on whether “it's a good thing to do.” For example, henoted, “if I run an ergonomics safety program that's going toimpact 40 percent of my workers' comp losses, what is it going toget me back? As a consultant, we have to answer that question.”

And while an initiative may be the right thing to do foremployees, he said, by itself “that's not going to get the checkcut to fund a large, elaborate program–especially now.”