How to engage the board on risk financing

Speaking at the event's Insurance & Risk Financing workshop, John Saunders, Senior Vice President of Marsh Pty Ltd, told delegates: "What we all are doing in this risk financing and risk management area is protecting the share price of the organisation because if there are unrealised risks that come to fruition it hits share price. Once we can get that message over to the board they are engaged." Explaining the role that risk financing plays in meeting risk appetite and tolerance is another key tactic, he added. "Any risk financing solution must really address the philosophy set by the board. So when engaging with the board we are addressing how the insurance in place fits in with what risk they are prepared to accept...To me that is a starting point on how we engage the board," he said.hideOther Engaging Your Board On Risk Financing panel members agreed. "That might sound simple but it leads into an education process. Boards do not have the time and the interest to become insurance experts but you have to find a mechanism to get that brief to them and create interest," said John Nagle, Chief Executive of Lumley Insurance. Kerry McGoldrick, Enterprise Risk Manager at Woolworths Ltd, said educating the board on risk and insurance is challenging. Not least because boards have different perceptions about risk. "It is difficult to talk about risk and risk appetite in uniform way. I have seen a whole spectrum of perceptions on risk management from a bung-covering tool to an absolute vital strategic input. Meeting the various needs and expectations can be quite challenging. I think risk financing is another example of that-they (boards) have different expectations and perceptions. It is a question of focused education. There is not a need for them to know everything but rather a need for particular information relating to key decisions," he said. To better engage with boards, risk professionals must take into account individual members' areas of expertise and their expectations, the panel agreed. You have to understand where board members are coming from and treat them as individuals when you are putting a pitch together, said Mr Nagle. "I think one of the hardest things is finding the sweet spot to engage on that skill set and make them think broader than their own disciplines," said panel host Anthony Ventura, Risk Management Institution of Australasia (RMIA) Board Member and Chief Risk Officer at Work Safe Victoria. Context is everything, what will work for one organisation won't necessarily translate to another, said Mr McGoldrick. Boards' involvement in areas like insurance will vary greatly, he added. Mr Saunders believes that in some respects it is easier to engage boards on insurable than uninsurable risks, primarily because they like the quantification and assurance provided by risk financing. "From a board's point of view it is more the uninsurable risks that they cannot quantify because we can all put programmes together where you can get down almost to the dollar the maximum you will ever spend on those (risk financing) programmes," he said. The experts conceded that getting boards' attention on insurance is inherently difficult because the mere mention of the term can trigger defences. "I find the biggest difficulty is that as soon as you mention the word insurance people generally-it doesn't matter whether they are on boards or not-think about their own domestic insurance. So in a lot of corporations you have directors who see insurance as being a much bigger house insurance. So the onus is on us to educate and I believe that is best done by using their terminologies," said Mr Saunders.

How to engage the board on risk financing

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