The challenges faced by risk managers – one risk manager’s viewpoint

Global Risk Manager talks to Sharon Xu (XU Tong), director, Marriott Asia-Pacific insurance, risk management, about the challenges she has faced as a risk manager and how to sell the value of risk management throughout an organisation.

She manages Marriott’s casualty insurance programme and risk transfer strategies in Asia-Pacific. Marriott is the world’s largest hospitality company, offering the largest portfolio of brands in the global hospitality industry.

GRM: What are some of the biggest challenges that you as a risk manager have faced? Have these tended to be more internal or external? How have these been solved?

Sharon Xu: Internal and external factors both contribute to challenges, which are also opportunities to a risk manager. They each impact an organisation’s insurance procurement and risk transfer strategy to different degrees.

The immediate external challenge faced by risk managers, in my opinion, is the continued hardening of global property and liability insurance market over the past 18 to 24 months, which results in much larger premium rate increases, even for loss-benign accounts.

In terms of property insurance, we have seen insurers continuing to reposition their books to recover from real estate and hospitality industry losses, mostly attributable to natural catastrophes, and therefore expecting continued rate increases to compensate some premiums that were historically undercharged. On the liability insurance side, especially general liability insurance, insurers are taking a long, hard look at premium due to increased third-party liability exposures under much harsher local legislations, as well as loss-making liability portfolios.

From what I have seen, the market today is no longer the one-sided ‘buyer’s market’ as it was over the past decade. Insurers nowadays tend to shrink capacity, curtail policy coverages and anticipate moderate to significant premium increases. Overall, it is not uncommon that an insured makes extra efforts by seeking alternative quotations and where possible to enhance the breadth of policy coverage at a reasonable premium cost.

The biggest internal challenge, in my view, is that a risk manager really needs to grasp a very comprehensive understanding about the company’s business activities and always strive to maintain first-hand information.

In my opinion, a good risk manager should at least have a reasonably good level of understanding about every aspect of the company’s organisational structure, product offerings and customer engagement. The realisation of goals and objectives of each business unit collectively ensures achieving a company’s overall objective and further fulfilling its strategy, which is pursued by all levels in an organisation.

Digging into the company’s business operations in detail calls for serious commitment by a risk manager as well as a significant amount of hard work and time, yet the whole journey is very fascinating. It also continually reveals the ‘unknowns’. Being curious and keen to learn, and never keeping the status quo, are key attributes for a good risk manager.

When working with the (re)insurance market, a risk manager represents the company and therefore should be the one who drives dialogue with (re)insurers, who are always keen to know a little bit more about the insured. This is such a valuable and extremely important undertaking. A good risk manager should continuously learn about the company’s new function, new products, geographical reach, new service offerings, new clientele, and new technology that may present the company differently to what it used to be.

GRM: How do you sell the value of risk management in a company both up to the c-suite and down to the workfloor?

Sharon Xu: Business units, when looked at individually, are operated independently under an organisation’s umbrella. However, when viewed holistically from a corporate perspective, they are so closely connected with each other and support each other, just as a human body works.

No risk stands on its own. Bad decisions are sometimes made due to biased treatment of risks or insufficient financial return analysis. Reviewing how risks relate to each other out of one business activity is very important. It helps a risk manager balance sensitivity of financial earnings versus potential losses. For example, how media risk, brand risk and financial risk impact each other. And what about the significance of monetary loss or reputational damage to a company in the event of one significant accident?

Chief executives often rely on a risk manager’s assessment about likelihood and magnitude of estimated losses, (un)insurable risks and contractual risk allocation to determine whether or not to proceed with a riskier marketing campaign or whether or not to launch a new customer experience. Furthermore, the more risks are evaluated by business teams based on a risk-versus-reward approach, the more on-job training they actually receive to empower themselves to make an independent and well-informed decision. When many of such responsible decisions are made through all levels in an organisation, the company’s objectives can be healthily achieved while the company’s core value is still being upheld.

I’m a firm believer that sharp decision-making is built upon a clear understanding of the company’s risk appetite. There are various ways to develop risk appetite. It’s imperative that a risk manager trades off loss and gain by taking into account various factors, such as contractual requirement, contract delivery, financial estimation, supply chain, personnel changes and even pricing fluctuation.

Focusing on more significant risks that may result in larger negative financial consequences in terms of dollar amount or geographical spread is one good way for prioritising risk appetite. Once risk appetite is mapped out, an organisation – from c-suites to business units with front-line employees – can confidently move in their respective directions by surrounding their business activities around the company’s preferred risk appetite and eliminating risks unfavoured by the company through various methods like risk avoidance, risk transfer, risk re-profiling etc.

Risk management and insurance is never a ‘one-man duty’ in an organisation. Cultivating a culture for risk-based business activity and risk-based decision-making is fundamental. Risk managers can play a big role here by facilitating the communication throughout the entire organisation of the company’s risk philosophy, risk appetite and risk treatment.

Every day is a new day to a risk manager, who keeps on exploring the unknowns internally and externally. There is a lot to do, but a lot fun to enjoy.

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