Risk managers urged to climb ladder to help tackle innovation

Mr Rubini said that risk managers could help the insurers deliver new solutions if they took more control of the risks faced by their corporations and more decision-making power over what information could and should be disclosed. The fact that insurers will only really be able to help corporations cope with emerging risks if they are given more and better data is further proof of the fact that risk managers need to be elevated upwards in the corporate hierarchy, he said. Mr Rubini gave his response to a question posed by Commercial Risk Europe at the end of a lengthy debate with leading Italian insurers and brokers that was focused on the topic of innovation and the future role the insurance industry can play to help business cope with the fast evolving risk landscape.hideThis has been a hot topic all year, particularly following the Japanese earthquake and subsequent tsunami that exposed the potentially huge scale of contingent business interruption losses that many companies face and which are largely uninsured. The insurers have been regularly criticised for being both unwilling and unable to rise to the threats presented to their customers by such fast growing exposures and challenged to respond more readily and quickly all summer. Unsurprisingly the insurers again came under the cosh in Milan yesterday as both customers and brokers questioned their commitment to innovation. But many of the so-called emerging and underinsured risks that companies currently face come as a result of business decisions to expand into new territories and business lines, using new production, supply and distribution techniques and technologies. Is it not perhaps therefore a little over the top to expect insurers to react rapidly to these new risks that were created by the premeditated, strategic decisions made by the companies themselves, Mr Rubini was asked. “Companies tend to believe that insurance companies should react and say that risk needs to be insured and when asked why a risk is not insured the risk manager does tend to say it’s not my fault and attribute the blame to the insurer. This is true,” conceded Mr Rubini. “But do please remember that our bosses blame us and so it is easier sometimes to blame the insurer rather than ourselves and risk losing our job!” he added, somewhat tongue in cheek. Mr Rubini did say, however, that it was clear that many risks that have manifested themselves as a result of the Japanese earthquake, tsunami and damage done to the Fukushima nuclear plant were clearly not expected by companies, just as no one forecast that no aeroplanes could fly as a result of the recent Icelandic volcano. “Therefore we should own up to our responsibilities, yes, but we should also use this as a reason to address important risk management questions faced by companies with global perspectives and an international view. This is because often industrial risk managers, even those who work with international companies, do not have the tools to know where and whether the risks appear,” said the risk manager for Telecom Italia. “This is why I say that risk managers should raise their role in the company. Very often they are really not able to manage or monitor risks properly because they do not have the overall view or control of the supply chain and so cannot calculate, for example, the impact of an event,” continued Mr Rubini. The ANRA president pointed out that in many cases the problem is made worse by the fact that companies simply do not want to disclose information that would help insurers work out the risk profile and thus underwrite the risk at a reasonable rate. But, again he said that this is another reason for the risk manager to seek and be given more power in the organisation. “The more you go up the hierarchical ladder the greater the decision-making power you have and capability to decide whether you disclose information. If the risk manager keeps reporting to a middle manager he will not have the responsibility for truly mapping the corporate risks. So efforts must be made to move up the corporate ladder,” urged Mr Rubini. The ANRA president added that he does not think that this is a problem limited to Italy and believes that even some chief risk officers suffer from a lack of real decision-making power. “The CRO is a good idea but you also have to see whether they are really just an organisation man or actually contribute to strategies. Very often the CRO is actually a member of the compliance structure rather than a risk manager and so whether you are a CRO or risk manager you have to take responsibility to acquire the information needed to map the risks properly and then decide what and whether that data should be disclosed,” said Mr Rubini. Earlier in the day Mr Rubini announced the publication of a position paper by ANRA on ISO 31000 and the risk management process that he said should be used by members to help explain the value of risk management to their bosses. The theme of this year’s conference was ‘Back to Insurance’. Mr Rubini said that the latest floods to hit Italy had once again proved the value of insurance, particularly for those companies and individuals who had no insurance and found themselves in trouble. “We need dialogue between the public and private sectors to ensure that the capital of the insurance companies can be used to help the state manage large natural disasters. I would like to say that the ‘Back to Insurance’ theme means that the insurance industry can be helped to innovate. We need real innovation,” he explained. “When you are dealing with your internal risks you need to strengthen your control function as ISO 31000 states. Our document will help explain to top management what risk management is and what is needed from other managers. We don’t want to continue to be the people who are isolated with the risk management process without transparency,” he continued. “There are IT-related or natural disaster risks, nuclear and BI risks that all hit the supply chain and have reputational and professional consequences. We don’t expect the market to expand without getting into the necessary details. Risk managers need to outline the risks in a transparent manner to show how they have been estimated and evolved and what has been done to protect yourself,” added Mr Rubini. The disclosure of information is a critical point because without the correct information the insurers understandably find it difficult to model and price the risks presented to them. This has been a key point made by reinsurers in particular during the ongoing debate about how to tackle the CBI challenges posed by the Japanese disaster and recent Thai floods. It was not surprising then to hear the word partnership keep cropping up yesterday during the discussion in Milan as all parties urged greater cooperation between risk managers, brokers and insurers to tackle such problems. Jorge Luzzi, long time board member at ANRA, and now president of Ferma, said that partnership is critical but added that it has to be an honest partnership. “We have talked today of the difficulty of getting total coverage from the insurance companies and risk manager concerns. This problem is in the hands of all three parties and above all we should avoid telling lies! Insurance companies should not say I can insure everything but only actually cover lower level risks, brokers should not say that they can save you money if they cannot and the customers should not claim that they don’t have any risks at all. Don’t tell lies!” advised Mr Luzzi, with a smile but a serious underlying message that actually lies at the heart of the effort to raise levels of innovation.

Risk managers urged to climb ladder to help tackle innovation

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