One of the most difficult tasks for insurers in establishing an effective enterprise risk management (ERM) program is embedding ERM principles and practices throughout the organization. As challenging as it may be for chief risk officers and risk committees to master the key concepts and strategies of ERM, it can be even more difficult to explain them to “novice” business people in the rest of the organization.
It is critical to the success of an ERM program, however, that companies instill ERM practices at every level in the company. ERM should be a day-to-day, simmering concern within business departments, rather than just a once-a-quarter fire drill by a small core risk-management team.
In this exercise, employees were told that they should identify some major risks that could impact their company from stories in the daily news. Through a brainstorming session, the group was able to come up with a list of major risks and identify emerging trends that had practical impact on the company. Increased mortgage interest rates, stagnant unemployment rates, tornadoes in theMidwestand financial institution mergers were just a few of the potential indicators of loss—as well as opportunity—that could have knock-on effects to their company.
Some issues affected human resources. Some impacted interest rates and investment activity. Others were indicators of potential asset or property risk. But most importantly, they were concrete examples of real-world events that helped employees better envision potential loss or threats to their own business, which may cut across functional departments and have even greater impact on the entity as a whole. This helped emphasize the need for, and benefit of, company-wide risk management.
Taken to extreme, the analysis could even go as far as to consider the risk of potential future personal injury from radiation due to cell phone use, as the World Health Organization’s International Agency for Research on Cancer Epidemiology continues to research mobile phones as a possible cause of cancer. Could this risk eventually increase group medical insurance costs for companies where corporate phones are routinely issued?
Make time for that first baby step. Look at the stories of today and list out the answers to the question, “What is the best and worst that could happen from this occurrence or event?” This can bring home the message that important corporate decisions can be impacted in multiple ways, through several departments by risks, flowing through multiple areas in the company.