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The Changing Face of Risk Management

Risk has always been with us. But today, it sometimes comes in strange new shapes that the risk management practitioners of 15 years ago would hardly have recognized.

Back then, risk management concerned itself primarily with such issues as roofs caving in from ice and snow and customers slipping and falling in the lobby. Today, its practitioners are more likely to lie awake wondering what would happen if the overnight package containing 40,000 credit cards were to disappear.

But risk is not just different; it has been supersized. Although hurricanes have always been capable of striking fear into shorefront dwellers, the rapid development of coastlines over the past several decades has increased the potential for damage. Now, they can devastate a Gulf Coast metropolis—killing hundreds of people, bringing shipping to a halt, uprooting whole communities, and causing billions in property damage and economic loss. And although the tragedy of September 11, 2001, is receding in time, many large companies are still coming to grips with the now-implicit threat of terrorism in many areas of their operations—routing goods through a single large transit hub, processing transactions in one or two data centers, having high concentrations of employees, and so on.

Another factor propelling these shifts in risk management’s focus is pressure from investors, rating agencies, securities analysts, regulators—in short, the wide array of interested parties outside the organization that monitors its performance from day to day, parties for which risk management is becoming a much higher agenda item.

The next few years are shaping up as a critical period for risk management as a practice and a profession. The new and far broader portfolio of risks is fraught with opportunity—the opportunity to take on these new issues proactively; to help management and the board devise solutions; and in so doing, to infuse a new way of thinking about risk into the company’s leadership. Counterbalancing the opportunity, though, is the potential pitfall of staying in the traditional comfort zone of risk management—identifying insurable risks, purchasing insurance, analyzing claims, and seeing to a myriad of administrative details.

To find out how risk managers are responding to this new world of risk and where they see themselves going in the future, the Risk and Insurance Management Society (RIMS) and Marsh jointly crafted and sponsored a quantitative survey of RIMS members to determine the current state of risk management. Greenwich Associates, a premier strategic-consulting and research firm for providers and users of financial services worldwide, conducted the survey. The results were presented as part of the “Excellence in Risk Management III” session at the RIMS 2006 Annual Conference & Exhibition in Honolulu. We offer our sincere thanks to the nearly 900 RIMS members who took part in the survey.

Michael Liebowitz
President, RIMS

Timothy J. Mahoney
CEO of Americas and G5, Marsh

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