Enterprising Leadership

As risk managers converge on New Orleans for this year’s Risk and Insurance Management Society (RIMS) conference, the events of September 11 will certainly be weighing heavily on their minds. But during these trying times, with rates hardening, terms tightening, and the economy in rough shape all around, risk managers may find their chance to excel. For incoming RIMS president Chris Mandel, the direction forward will be defined by “a commitment to world-class risk management”.

Mandel’s definition of “world-class” includes his own adherence to an integrated, holistic approach to the profession. As assistant vice president of enterprise risk management (ERM) for the United Services Automobile Association, he is an obvious advocate of this take on risk management. However, he believes ERM is not a new process, but “an explicit recognition that to do risk management well, it must consider all significant risks to an enterprise”. Rather than taking a “silo” view of risks, ERM involves a “consistent and integrated framework that governance and management can both use and see as contributing value”.

“It is not rocket science and doesn’t need to be,” Mandel says of the often-misunderstood ERM. “It does not imply all risks are fully quantifiable, but that they can still be material and significant and therefore require some treatment and control.” And the “risk manager of the future” will need to be able to move beyond risk assessment and insurance buying, to understanding the overall strategic goals of the company and how risk management fits into these goals.

Trying times

Despite the increasing emphasis on processes beyond insurance buying Mandel predicts for risk managers, in the post-September 11 environment he acknowledges that the challenges for the profession are many. In response to the growing uncertainty and demands risk managers may face because of the terrorist attacks on the World Trade Center (WTC) and Pentagon, RIMS has added to its conference agenda several sessions dealing with September 11 topics. Among these are sessions regarding the impact of terrorism exclusions, coverage implications of the WTC claim, and the current state of the insurance industry.

In this time of rapid change, more focus then ever will be on risk managers’ ability to perform, and on the insurance industry’s ability to weather difficult financial times while still maintaining its relationships with commercial buyers. Mandel sees control and monitoring of business practices as shaping the future for risk managers, to “prevent abuse by rogue managers and governance”. “As I see it, internal auditors must become partners with risk managers to ensure the behaviors expected by stakeholders. However, it will be up to risk mangers to take the initiative on these partnerships, otherwise, I believe they are unlikely to develop.”

He points to RIMS’ “Quality Improvement Process” (QIP) as one way for industry partners, including insurers specifically, to learn what risk managers need and want in terms of their relationships. QIP is a “job description” or sorts, which outlines what risk managers expect from commercial insurers and a tool for evaluating the performance of those insurers, as well as other suppliers, such as adjusters, consultants and third party administrators. The second part of the process involves performance reviews, published on the RIMS web site (www.rims.org). The first stage will be rolled out at this year’s conference, and the second, at the 2003 conference in Chicago.

“The relationship between buyers, sellers and intermediaries is best facilitated by all parties embracing the quality initiatives that are all around us,” says Mandel. He believes business partners would rather know the truth than to be left wondering why relationships have stalled or shut down completely. And the process should not be a one-way street. “Ultimately, we should have a trust relationship that allows similar assessments to flow back the other way. Partners need know that buyers understand the hurdles they face in meeting expectations and the extent to which, if at all, buyers are road-blocking success because of their behavior.”

Canadian content

This year will see the maturation of RIMS newest educational undertaking, the RIMS Fellow designation, which has been under production for some time. Born in Canada, the senior designation is one of Mandel’s key concerns in the coming year, as a means of advancing the profession and raising the profile of risk managers within the corporate structure.

Distance education, a key component of RIMS’ relationship with its Canadian chapters, according to Mandel, is also a focus. New workshops will look at key issues facing risk managers currently, including alternative risk financing ( including captives), disaster planning and commercial insurance challenges. The Canadian Risk Management Council (CRMC) has financed a test program to provide distance education to members. The first workshop, ironically enough on ERM, was web- and tele-conferenced, and now the focus will turn to how to run future workshops more cost-effectively, the CRMC reports.

Canadians make up about 10% of RIMS’ membership, and despite the focus of RIMS on international growth (the Society added a new Japan chapter last year and has plans for further international expansion), Mandel says the strong presence of Canadian members on the RIMS executive and the work of the CRMC will ensure Canada has a strong voice in a more global Society.

Taking the hill

In the year ahead, RIMS will be facing some key issues in its dealings with legislators and insurance commissioners, among these the changing landscape after September 11. Beyond the Society’s annual “RIMS on the Hill” day, where the Society actively lobbies the U.S. government, there is also the addition of a paid advisor in Washington, who will tackle, among other issues, terrorism risk financing.

RIMS is working to promote a federally backed terrorism reinsurance program, joining insurers in this fight. Most recently, RIMS has asked members to provide evidence of the hardships they are facing in light of the absence of terrorism coverage. When the U.S. Senate broke for holidays without a solution in place by yearend, RIMS expressed its displeasure on behalf of members. Outgoing RIMS president David Mair said at the time, “the Senate dropped the ball… This is an issue for the economy and for policyholders, and this inaction will significantly impact the ability of businesses to obtain adequate insurance.” RIMS has also lobbied to see such coverages as workers’ compensation and business interruption included in any government program.

A similar lobby effort is taking place in Canada, through the CRMC, where risk mangers joined insurers (working through the Insurance Bureau of Canada) for the creation of a federal terrorism pool. The Canadian government is biding its time, awaiting a decision by the U.S. government to take its lead from.

Draw of diversity

Mandel himself hails from the insurance industry, where he was formerly with Liberty Mutual’s claims department, a starting point he says many risk managers have in common. Taking a foundation in risk identification, quantification and control, he moved into the risk management milieu at Marsh & McLennan as a senior consultant. From there he took on several senior risk management roles, including with the Bell Atlantic Corp., the American National Red Cross, and Tricon Global Restaurants (which runs KFC, Taco Bell and Pizza Hut). In his current position with the USAA, he manages the risk functions for a US$9 billion financial services organization serving the U.S. military.

At RIMS, he has served in a variety of roles over more than 12 years, including as chair of its government affairs committee, and in positions with the Potomac and Blue Grass chapters. He was formerly vice president of government affairs and later member/chapter services for RIMS, before becoming first vice president in 2001. Along with a degree from Virginia Polytechnic Institute and a Masters in business administration from George Mason University, he also holds the CPCU, ARM and AIC industry designations. The lure of risk management, he says, is the ability to tackle a variety of operations, including insurance, but never limited to it. “There’s never a dull moment in risk management despite what some think of as an “insurance” discipline.”

As his job title suggests, Mandel believes strongly in a risk management role that requires knowledge of all areas of the business, its people, processes and key decision-makers. In his personal experience, the challenge of understanding and communicating with all units in a large organization is well worth the effort. “The diversity was the draw, and it has paid off.”