The rise of intangible assets and non-physical threats such as data, brand and reputation means insurance is now much more about finding solutions to support growth rather than simply buying bricks-and-mortar protection.
Some larger corporations have created chief risk officer (CRO) positions on their boards and, in the UK, risk reporting requirements under the Corporate Governance Code will only increase the importance of risk discussions at board room level. Yet, many risk managers are still struggling to articulate the value they bring to their organisations.
According to our recent research with Airmic...
of risk managers believe the value of
risk management to their company will rise in the next three years
of risk managers find it
hard to express what they do
say they struggle to explain how insurance helps their company meet its goals and protect its balance sheet
The role of a risk manager
Defining the role of risk managers can be tricky. Is a risk manager the person who buys insurance or the person who mitigates risk? Is he or she the person in charge of workplace safety or all that has been mentioned so far.
The risk manager can be a position in its own right, or a function carried out by the CFO, treasurer or head of compliance. Some may report up a chain of command, while others report directly to the board via the CFO, CRO or other senior figures.
All organisations have their own unique approach to risk, and the risk manager has his or her own set of responsibilities and position in the reporting hierarchy.
Risk managers have touchpoints across entire organisations, from legal and compliance to finance, IT, HR, security, quality control and project management.
Yet, many are seen within their organisations as little more than a cost centre that purchases insurance in a commoditised fashion.
“Many CFOs see insurance as a frustrating product with inconsistencies and a cost,” explains Hamish Roberts, Business Development Director at JLT Specialty. “Accordingly, we find risk managers are struggling to articulate what they do and the value they bring to their organisations.We think we can help them do this better, so that they will move higher up the value chain.”
Talking the right language
A JLT study, in partnership with Airmic, found that, generally, risk and insurance managers find it challenging to articulate the value and strategic importance of insurance.
One of the first steps risk managers can take to better articulate their role is to speak in a language that makes sense to people who aren’t experts in insurance.
“Insurance can be very dull for a CEO, treasurer or company secretary. Risk managers have to make complex simple, and speak the stakeholder’s language to make a boring topic more interesting,” says Roberts.
While there is little in the way of tangible evidence for insurance performance beyond the cost of premiums and the result of settled claims, the real value of insurance is its ability to protect the balance sheet against unforeseen volatility.
Risk managers often measure success in premium reductions, deductibles, limits, exposures, and cost of risk or claims against premium ratios. These are insular terms that are only really relevant to the insurance team.
How might the conversation go?
360° stakeholder management
Insurance conversations should be tailored to the goals of each internal and external stakeholder.
“Often risk managers are talking a different language to the C-suite, leading to a translation crunch,” says Roberts, explaining that a CEO or CFO talks in terms of earnings per share, cost of capital, market capitalisation, shareholder dividends and cash versus debt.
“We believe the risk or insurance manager should learn how to translate the benefit that insurance has on one or more of these key corporate measures. By speaking the right language, risk management ceases to be a function and becomes, instead, a strategic activity within the group.”
In order for risk managers to effectively communicate the value of their work to these various stakeholders, Roberts argues that they must be “multilingual”, tailoring their language to each stakeholder’s particular objectives while aligning the risk and insurance function to the company’s overall strategic goals.
For example, the finance department may be interested in balance sheet efficiencies while joint venture (JV) partners may be more interested in trust and transparency. On the other hand, business users might want to know how certain coverages can help them overcome operational risks and challenges.
How marketing can help risk managers?
Roberts believes risk managers should engage their marketing colleagues and even request their own marketing budgets to create an internal ‘brand’ to help get their message across. Creating an insurance intranet, for example, is one way of building a brand internally.
“Simply keeping people informed of what you are up to can raise insurance’s profile within the organisation and help insurers get comfortable with the culture of the company,” Roberts explains. “Marketing isn’t just for customers – it can help risk managers promote themselves and elevate their function internally.
Competitions, reports, mouse- mats, a blog, a party – anything that raises the profile of insurance can sell the function internally, and make it interesting, relevant and strategic.” Tap into your companies marketing resources.
Relationships with insurers deeply affect the value risk managers can bring to their organisations. A good relationship has a direct impact on service, pricing and the terms and conditions of cover, as well as the likelihood of full and timely claims responses.
The better an insurer understands a company’s risk, the more comfortable it becomes, and the more likely it is to provide coverage that serves the company’s strategic plans.
It is therefore essential that risk managers promote their brand externally to ensure insurers truly get to know the company’s culture.
“Risk managers talk to their insurers about limits, deductibles, losses, exposures and perils. But how many take a copy of their company’s annual report to the meeting? Take your CEO statement. Take marketing or PR with you. Seeing an insurer is no different to meeting a customer or JV partner,” says Roberts. “And make time to see your insurers when you’ve got nothing to talk about.
Ask them how they are and what challenges they are facing. Make a good impression, and do it outside of the transaction,” he adds. “Don’t just see them when there is something to negotiate – that is not strategic.”
Better still, he says, risk managers should invite senior management to meet insurance markets.
“CEOs and CFOs who visit insurers quickly understand that meeting people and talking about your business, strategy and risk pays dividends. It turns a commodity purchase into a relationship.”
How to create an internal ‘brand’
- Develop an intranet presence with live case studies
- Create an insurance blog and a social media community
- Hold seminars/lunches to educate staff on ongoing projects
- Publish a 360-degree review on how insurance helps meet strategic goals
- Distribute an internal newsletter updating staff on insurance team activity
In order to clearly demonstrate the value they bring to their organisations, risk managers may want to consider engaging an independent broker to conduct a 360-degree study of their engagement with internal and external stakeholders, and presenting the findings to their boards in a language they understand.
Demonstrating the hard financial benefits these relationships bring to the organisation, and that insurance can play not just a transactional but a strategic role in helping to meet corporate objectives, will make the C-suite sit up and take note.
This could lead not just to greater acknowledgement, but potentially bigger budgets, more involvement in key decisions and greater latitude to explore strategic ideas such as forming captives.
Roberts says, “By effectively articulating the value you add to your organisation will get you the C-suite’s attention and help you take your role to the next level.”
Articulating the value of risk management
- Speak the language of stakeholders, not insurance jargon
- Align insurance to financial metrics to get the attention of the C-suite
- Focus on balance sheet protection in addition to cost savings
- Identify important stakeholders and engage in regular dialogue
- Engage marketing to create colourful, easy-to-read reports with diagrams
- Request an insurance/risk management marketing budget
- Introduce senior management to your underwriters
- Build relationships to ensure insurers understand your company
- Consider ways to turn risk management into profit centre