Insurers like to win.Highly competitive in their markets, they are constantly lookingfor new techniques to get an edge over rivals, while adjusting tothe rough consumer and regulatory turf. Toughening up for thefuture, insurers are developing enterprise risk management (ERM) programs to strengthen theiroperations against financial blows.

One of the key steps in developing an ERM program is creating a risk committee to advise the board ofdirectors on strategic risks. The risk committee also helps makedecisions on key issues that impact day-to-day operations. To builda champion team, sports professionals set firm goals andobjectives, invest in talent, appoint dynamic leaders, and committhemselves to extended periods of intense training. Similarly,companies must take concrete steps to build a winning roster ofrisk experts.

What additional factors should go into the risk committeeselection process? How can companies build stronger risk teams?Stealing a few plays from the “pros,” here are some ideas forkicking off a new risk committee with a running start.

Identify Goals and Objectives for the Team

“If you aim at nothing, you will hit it everytime.” – Anonymous

When creating a risk committee, the board should fully define the mission forthe group at inception, establishing clear short- and long-termgoals. Having a clear-cut vision for the committee gets the teamheading in the right direction as soon as the clock starts. Someshort-term goals for a risk committee include:

• Developing a risk committee charter outlining the committee'sresponsibilities, composition, frequency of meetings, authority,and the charter review process.
• Establishing a reporting structure for flow of informationbetween the committee, the board, and other risk managementfunctions in the organizational hierarchy.
• Evaluating the current procedures for risk and controlassessments company-wide, analyzing any gaps, and recommendingproposed changes.
• Helping the board scope and define the risk appetite of theorganization.

Longer term, the risk committee may be charged with tasks suchas reviewing strategic initiatives in light of the risk profile andappetite of the company. A risk committee's feedback provides aunique perspective to a proposed project that might otherwise beovershadowed by sales or marketing goals. The committee may alsohelp ensure that personnel, resources, and processes continue to beavailable to maintain strong ERM practices. Members may be asked toreview public disclosures or speak to rating agencies on relatedissues.

Formally documenting goals and calendaringactivity establishes a game plan for a risk committee, andscouts out what skills and experience the committee members shouldhave. New team members can be recruited and other financial orsystem resources obtained, in light of the specific tasksoutlined.

Making the Best of Draft Picks

“Talent wins games, but teamwork andintelligence wins championships.” – Michael Jordan

The next challenge is to flesh out a full roster of talent withcomplementary skills and experience. Initially, a first cut fromthe talent pool is based on technical skill, with individualsselected to reflect the size of the company, its lines of business,and key operational areas. Actual experience with risk and relatedissues is helpful, although the pool of “experienced” ERM professionals may be relatively shallow. Pinch-hitterswithout specific ERM experience are often recruited from thefinancial, accounting and actuarial departments.

From there, selecting the best individuals for the team is anart, where the committee's need for superior technical risk andfinancial expertise must be balanced with “softer” managementskills. Communication, motivation and negotiation are as mucha part of a risk committee as the ability to read financialreports, or calculate risk-related equations. Enthusiasm andattitude toward the ERM program can also be just as important asspecific knowledge. Setting the tone from the top, individualmembers can dictate whether ERM-related projects will be viewed as a grit-your-teethburden, or an exciting opportunity to improve the business.Attitude can speed or delay projects, encourage or punishdisclosures, and reward or stifle innovation.

Many of the issues coming to the risk committee will be ofsignificant importance to other board-level groups. Overlap orsharing of members may not only prevent redundancy, but also helpcommittee members “cross-train” to gain experience in differentarenas. Thus, the committee may want to have members from othercommittees, such as the audit or compensation committees. Somecompanies also choose to have at least one member who is anon-employee or “outside” director, whose experience can addbreadth and depth to the team.

Finally, the board should interview and appoint committeemembers in a multi-stage, or “tag- team approach.” In somecompanies, committee members are selected by a chief risk officeror another single manager, without much debate or input by theboard. This creates a danger that the team may become too slantedin a particular functional or technical area. Instead, appointeesshould either be screened by at least two individuals withdifferent organizational responsibilities, or reviewed by a vote ofthe whole board. As with any team, a well-balanced roster typicallyproduces better results.

Selecting a Team Captain or Coach

“Your role as the captain will give theship direction, purpose and ultimately success.” – Dale Brown,coach

Many winning teams thrive on structure that is created from thebottom up, yet are guided by strong, confident leadership from thetop, by captains or coaches. Some of the best coaches are expertsin their field, but also exhibit certain qualities or values thatorganize and motivate the team, moving the group forward.

Risk committees should also have a leader,typically the committee head, who may or may not also be thecompany's chief risk officer. He or she may not have the strongestrisk background, but must be able to call on additional resourceswhen needed. More importantly, he or she will also have thepersonal qualities of a coach. These qualities may include:

• Strong organizational skills, with a firm understanding of whattime commitment and education will take the team to make deadlinesand reach goals.
• A deliberate appreciation of each individual's strengths andgifts, and the knack of deciding how best to allocate thoseresources to a team task.
• Composure under pressure, with willingness to shoulderresponsibility for major decisions or setbacks, rather than passthe buck.
• Concern for the relationships between team members, and theunderstanding that people need to feel secure and valued as a teammember in order to make their best efforts. Good captains spendtime integrating newcomers into the group. They may also helpresolve conflicts between current members, with sense of balanceand fairness.

Spring Training: Orientation & Warm Up

“Build for your team a feeling of oneness,of dependence on one another, and of strength to be derived byunity.” – Vince Lombardi, coach

Pre-season training, team building, conditioning, and practiceare all important first weeks in a championship season. Likewise, anewly-formed risk committee should spend time on a few foundationalactivities before jumping into action. Some preliminary activitiesto help set the committee's vision, alignment, and commitment mightstart with a critical review and tweaking of the committee'smission as established by the board, and drafting of a committeecharter.

For many committees, specific time should be allocated to ensurethat the committee members receive some basic education on ERMprinciples, tools, reporting, financial principles, and so on. Thisensures a baseline of common knowledge, and instills a coherentsense of purpose for the committee. Not all team members will havethe same background, training, opinions or perspectives. Also,since many will report to different stakeholders, a review of whothe stakeholders are for ERM efforts can be enlightening. The groupshould then review short and long-term goals, making any changesonly after exploring individual member expertise.

Practice Makes Perfect

“The more I practice, the luckier I get.” –Jerry Barber, golfer

The average basketball team plays 82 games in a regular season before theplayoffs. For baseball, it is 162 games. Each game must be fought, and evenif the team loses one game, it may win a season based on the skillsit has developed over time in each battle. Championship games arethe culmination of hard work accomplished during the year.

While keeping their ultimate mission or goals in mind, riskcommittees must also put in hard work consistently over longperiods, to fully understand and assess risk. Risk and controls are reviewed both at a point in time, andover time. Instead of meeting just at year-end, risk committeestypically have a regular schedule of meetings throughout the year,as well as set protocols for ongoing communication and keepingeveryone “in the loop.”

Motivation can be difficult to maintain forany long-term effort. To maintain motivation for a risk committee,set performance goals for the committee (whether or not tied tocompensation). Just meeting or exceeding goals can be a boost to ateam. For individual committee members to stay motivated andengaged in ERM efforts, they may appreciate non-financialopportunities, such as working closely with the executives, seniormanagers, or new business. Alternatively, individual risk committeemembers may want or need ongoing training and education as acondition of their participation. Explore what help drives theseprofessionals day-to-day.

Managing Setbacks

“It may sound strange, but many champions are made championsby setbacks.” – Bob Richards, Olympian vaulter

How a team handles setbacks such as injuries or losing streaksis an important indicator of their future success. The best teamsconduct routine self-assessments, and seek honest feedback fromtheir owners, managers, or fans, debriefing after each game. Playsand strategies are continuously updated. Poor performers areidentified quickly, and are given the resources or additionaltraining to develop weak skills.

Risk committees should also foster a culture of continualself-improvement, in an open environment. As part of this, theyshould encourage fair criticism, hear out “risky” new ideas, and proactively solicit comments from theirrespective stakeholders. Failures, setbacks, and delays along theway should be addressed promptly, with a focus on fixing theprocess or problem, rather than pointing fingers of blame.

Planning for Next Year

“You can always become better.” – Tiger Woods

Finally, champion teams look ahead beyond the trophy to nextyear. Risk committees too must continually think to the future.Consider succession planning for committee members. Current membersmay also want to be given some rotation of assignments, roles, andtasks within the committee, to gain fresh perspectives and add morevalue to future discussions. If new team members are joining, arefresher of ERM basics training or team-building activities may beneeded to kick-off committee efforts for a new year. Don't assumewhat worked (or didn't work) today will be the same next year.

With proper focus, training, and motivation risk committees helpinsurers achieve their risk management goals, and gain a winningedge over their competition.