Workers' Compensation, D&O Top Risk Managers' Worries

As the risk management marketplace becomes increasingly sophisticated, risk managers are taking a more strategic approach to managing risks, according to a recent survey by Ace USA, a subsidiary of Bermuda-based Ace, Ltd.

“In today's changing environment, companies are taking an enterprise-wide, holistic view of risk and identifying solutions to protect their overall market positions,” said John F. Ryan, Ace's senior vice president, strategic marketing. “Risk managers are moving beyond traditional insurance programs and taking a proactive approach through the use of risk management and financing tools.”

Ace asked risk managers about three areas: the top two issues that risk managers face, two key projects that they are working on, and their intentions regarding alternative risk financing. Workers' compensation cost control and directors and officers coverage were two of the greatest concerns. Other top issues for 2004 are addressing enterprise-wide risk management, contingency planning, internal risk management organization, containing the costs of their programs, getting the right terms and conditions, and consolidation and financial security of carriers. In fact, said survey respondents, the quality and financial strength of carriers is a key factor for buyers.

Among the projects that they are working on, risk managers listed internal risk management processes, specific program reviews, enterprise risk management and ART, captives, safety, cost reduction, mergers and acquisitions, and global issues. Internal risk management projects included Sarbanes-Oxley compliance, bench-marking, budget allocations, risk assessment process, and six sigma.

The survey also revealed an increased interest in the alternative market, with 55 percent of the respondents saying that they expected to increase their use of alternative risk financing over the next year. Another 40 percent expected that figure to remain fairly constant. In addition, the risk managers are considering insuring employee benefits through their captives and looking for ways to expand the functions of their owned captives, according to Ace.

When executives were asked what specific risk financing tools they intended to use in 2004, 61.9 percent said that they would seek to retain more risk, 21.4 percent would use loss portfolio transfers, and 19 percent would expand the use of an existing captive.

In addition to examining the change in the levels of risk financing needed and various tools used to find creative responses to managing risks, executives reported a renewed interest in new methods for evaluating risk from an enterprise risk standpoint, Ace noted. This includes evaluating risk from an entire company's perspective, making risk discipline an integral part of the company's overall operations, and ensuring that decision-making discussions always include risk issues.