Brokers urge risk managers to embrace ERM and be more strategic

Risk managers must align their work with the company’s business goals in order to avoid just pursuing risk management for risk management’s sake, according to brokers.

They should also make better use of the data they work with by ensuring it can be fed into senior executives’ decision making and try to be more positive in their outlook to avoid risk managers being tagged with the dreaded ‘business disablers’ moniker.

Brokers from Marsh and Aon were addressing an audience of risk managers at the Pan-Asia Risk and Insurance Management Association (Parima) conference held in Taiwan.

These may be familiar messages that have been repeated for many years within the risk management industry but there at least appears to be signs of progress in areas such as business continuity management.

According to Sean Lin, head of Marsh Advisory, Marsh Taiwan, and Marshall Lee, managing director, head of climate and sustainability, Marsh McLennan Asia, companies in Taiwan are adopting BCM in greater numbers.

“A lot of insurance buyers are focused on BCM due to the supply chain disruption they suffered during the pandemic,” said Lee.

In addition, more companies are aligning themselves with various International Standard Organisation (ISO) frameworks, said Lee. For example, companies within supply chains are increasingly required to comply with ISO 22301, a standard specifically for BCM.

The same standard is also being used as the basis for firms’ geopolitical risk assessments, while business impact analysis has also become very important, according to Lee.

“You have to know who your stakeholders are and you have to know how long it will take to recover from any disruptions in your operations. And when you develop various supply chain strategies, you must ensure they align with the company’s sustainability values,” said Lee. “Otherwise, you are just wasting your company’s resources.”

The importance of alignment was also emphasised by Adam Peckman, head of risk consulting and cyber solutions, Asia Pacific, Aon.

He highlighted an apparent disconnect between the risks prioritised by business leaders in the region and the amount of insurance purchased by risk managers. According to Aon’s analysis, AI has become hugely important in business performance but risk managers are not yet able to talk about the cost of AI risk.

It is a similar scenario with cyber risk. While business leaders have identified it as a top risk, the insurance market is relatively small, with just $18bn in gross written premium globally.

“This is because we do not as an industry quantify the risk in a meaningful way,” said Peckman. “As risk managers, you do all of this fantastic work but how does that feed into decision making?”

“Matching risk to risk capital and balance sheet protection is the ultimate aim but risk managers do not emphasise the positive side enough and how they create value. It is not just about identifying risks but linking them to better business performance,” said Peckman.