OCTOBER 1998 MEETING RECAP

"RISK MANAGEMENT and the CFO"

Reported By: Lilly Cowan, CPCU

The "Financialization" of risk management is a term created by the Chapter’s October meeting speaker, David Katz, Assistant Managing Editor for the National Underwriter. Katz, who specializes in writing on Risk Management and Loss Control, stressed that the process of managing risk is becoming increasingly complex.

Several years ago, after reviewing the literature, Katz found that the approach toward risk was changing from compartmentalized and analytical to more holistic and financial. Today, the risk management process requires looking at the risks of the entire corporate enterprise as a whole.

So what does this mean for insurance industry practitioners? In brief, it is no longer sufficient to address traditional insurance risks (general liability, conventional property); agents, brokers, carriers and risk managers must also be prepared to consider other types of perils, such as: catastrophic property and political risks, environmental risks, product and directors’ & officers’ liability, and currency and interest rate risks.

To learn more about the decision-making process for funding a company’s risks (insurance buying and other methods), the NU Co. sponsored a research study.

Using 3 flow charts, Katz discussed how this process varies at different companies. The research revealed that senior financial officers have a high level of interest in the insurance buying process (but a small amount of time for day-to-day monitoring), which is intensified at renewal time. Some even initiate the renewal process.

According to Katz, the study showed "a vast change in perspective in the roles of senior financial officers and risk managers." He concluded that the greater role of the CFO in the risk management process is here to stay.