Survey Finds Disconnect Between RMs And Executive Suites

Of the risk management approaches, 17 percent of firms said they were strategic, 44 percent were progressive and 39 percent were traditional, with most companies falling between $1 billion and $4 billion in revenue.

Pamela G. Rogers, senior vice president with Marsh USA in Minneapolis said the survey pointed out differences between executives and risk managers over what they see as their company's top risk exposures.

Executives are most focused on business continuity and crisis management risks, while risk managers are more concerned about brand and reputation risk, she said.

Ms. Rogers added that the study shows there is significantly less conversation between top management and risk managers about the major concerns of executives and the board of directors.

She said the question arises as to whether risk managers are even aware of the conversations being held by the corporate executive suite. "Why is it we're focused on brand and reputation, but they don't seem to be as concerned about the risk?" she asked. "Are we invited to these conversations or are the results of these conversations being given to us?"

The study also found that risk management policies and procedures do not always reflect the top concerns of risk management. For example, while 47 percent of the board and executive management are giving regular attention to brand and reputation risk, only 20 percent of risk managers have a task force committed to assessing this risk and making contingency plans, and 19 percent have a written policy to manage the risk.

Ms. Rogers emphasized that because risk managers are good at building processes and plans, they are equipped to bring down the concern level of top management–which presents opportunities to risk management.

She said that consistently, about 25 percent of organizations have some sort of plan in place for five key areas:

o Brand and reputation

o Regulatory/compliance

o Business continuity/crisis management

o Workers' compensation

o Human capital

Richard J. Roberts, corporate risk manager with Ensign-Bickford Industries, Inc., said that brand and reputation risk includes a marketing approach, sales approach, product and liability issues, making it "a little bit tougher to tackle." He also pointed out that the study indicates areas where there is growth opportunity for risk managers.

Addressing the financial crisis affect on risk managers, the study found that about half the risk managers said they were impacted by their firm's investment in risk management–53 percent said yes while 47 percent said no.

But Ms. Rogers pointed out that only about 10 percent of organizations believe there will be a "significant change in their risk management spent in 2009." Most believed it would be about the same–40 percent, while 26 percent believed it would be slightly higher and 24 percent said it would be the same as 2008. Only 7 percent believed their firm's investment in risk management would be much lower compared to 2008 and 3 percent thought it would be much higher.

She said, however, that while the money being spent may not be changing, areas of focus are being driven by the economy. Risk managers are more focused on efficiency in their programs.

o The majority, 39 percent, said they were increasing their focus on loss control.

o Thirty-seven percent said they were focused on marketed portions of their insurance program.

o Thirty-six percent said they had replaced their insurer based on perception of financial condition.

o Thirty-one percent have undertaken a risk retention or risk transfer optimization review to determine if they are buying the right amount of coverage and taking the right deductibles and retentions.

Ms. Rogers said that while some risk managers are increasing insurance limits, the survey showed that 12 percent to 15 percent are considering creating a captive insurer because of the current economy.

Regardless of whether risk managers are spending more or less, the study found that they are still replacing insurers based on the perception of their financial conditions and marketing portions of their programs.

One part of the survey that Ms. Rogers saw as "disconcerting" was that executives thought that programs being used by risk management were less effective at navigating the financial crisis and less effective at integrating emerging risk information into decisions–while risk managers who responded saw themselves as more effective at both.

An important message, she said, is for risk managers to determine where their perceptions differ from upper management and find out how to "get on the same page."

Mr. Roberts said this was the one area of the survey that was "surprising. To me was almost a complete disconnect," he said. "We've got to get on the same page. I hope everyone in the room was surprised by these survey results."

Ms. Rogers said it's important that risk managers begin to have tough conversations with upper management about where their perceptions differ and how to bring them together. She said risk managers also need to point out how their programs are successful at helping the company weather the financial crisis.

Without these difficult conversations, she said, risk management will have a difficult time moving up in the company and instilling strategic risk management programs in their company.

While there is much talk about how a risk manager can be effective and successful, Ms. Rogers said, "I still maintain, it is no different than how any manager can be successful at an organization. It's not the fact that you're a risk manager," she added. "Any manager in an organization has to understand the culture." They need to know when to speak and they need to have their finger on the pulse of the organization.

"We're no different, we just have a different set of topics," she concluded.