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Strategic Risk Management

Strategic Risk Management

Risk management is about more than buying insurance. It’s only been in the last few years that companies better appreciate the importance of risk management and are doing a better job in addressing that important topic. With the risk landscape constantly changing and growing, companies are also expanding their risk departments. Risk management has become a key issue on the agenda for boards of directors as well. Boards are pushing for not only the right people in the risk management roles, but also the right people on the board itself as well as the right risk advisers.

Strategy: A complete plan of action for whatever situations might arise in achieving an organization’s goals within the established time. An organization’s strategic plans will determine the actions the organization will take at any stage of the planning period as circumstances change.

Strategic Risks: Those internal or external uncertainties, whether event or trend driven, which impact an organization’s strategies and/or the implementation of its strategies.

Strategic Risk Management: A business discipline that drives deliberation and action regarding uncertainties and untapped opportunities that affect an organization’s strategy and strategy execution.

Enterprise Risk Management: A strategic, well planned and executed management process designed to protect an organization’s assets by addressing the full spectrum of its risks and managing the combined impact of those risks as an interrelated risk portfolio. Risks are integrated into the strategic planning process where decisions on value creation as well as value protection are made.

  • Identification and analysis of exposures

    • Insurance supplementals

    • Occupational Safety and Health Administration checklists

    • Industry specific materials

    • Work flowcharts for complex or multiple processes or plants

    • Qualified experts for exposures, perils and hazards specific to unique types of industries

    • Financial statement analysis

    • Loss data analysis

    • Property checklist of assets – tangible and intangible

    • Perils analysis

      • Human peril

      • Economic peril

      • Natural peril

    • Exposures Analysis

      • Property

      • Net income

      • Liability

      • Human resources

  • Strategies to control identified exposures

    • Employee policies and procedures

      • Identify prohibited activities/behaviors

      • Identify required activities/behaviors

    • Employee industry training

    • Employee safety education 

    • Carrier risk management assistance

      • Segregate by designating a certain area for high risk exposures

      • Separate by spreading property values and production over several locations

      • Duplicate by backing up critical systems and operations

    • Hazard plan

      • Pre-loss Approach

      • Post Loss Approach

  • Financing of losses with external and internal funds

    • Purchase insurance

      • Rates, limits and exclusions

      • Treated as commodity or capital

    • Self insure

      • Capital reserve, line of credit, credit cards

    • Share liability and costs through contracts

      • Insurance requirements for Sub-contractors and/or vendors

      • Hold Harmless Agreements

      • Waivers of Subrogation

  • Administration of Risk Management process

    • Responsibility flow chart and timelines

    • Physical inspection

    • Policy and procedure handbook review and training

    • Compliance review

    • Forms and check lists review

    • Insurance plan review

    • Training plan and outcome review

    • Contract review

      Imperatives: Strategic Risk Management

  • Is more than just about buying insurance.

  • Must be integrated into all business management functions.

  • Becomes integrated into company culture

  • Stabilizes business performance and serves to mitigate exposure incidents.

  • Is a journey not a destination

  • Is based on the following guiding principles:

    • Value-driven: Specifies the foundation and approach for crafting, capturing and protecting enterprise value, while serving as a source of competitive advantage

    • Reflective: Addresses the unintended consequences and potential exposures arising from, and created by, operational plans designed to execute strategy

    • Structured: Evaluate risk intelligence and risk-informed decision making with respect to strategic decisions at the board and executive management level

    • Dynamic: Recognizes the positive as well as negative impact on enterprise value (e.g. on earnings, cash flow, capital, reputation and differentiating position) arising from emerging and dynamic changes in the environment

    • Process-based: Represents an applied method and process in effective strategic decision-making, operational implementation of decisions and responsiveness to industry, economic or technological changes

    • Condition-based: Evaluates strategies in the context of significant internal and external conditions, such as organizational capabilities, environments, forces, events, trends and stakeholders

    • Consequential: Prioritizes and manages strategic exposures by relevance, importance and uncertainty in risk taking as well as mitigating strategic risks

    • Interdisciplinary: Encompasses the intersection of strategic planning, risk management and strategy execution

    • Scenario-driven: Focuses on the calculation of investment, resource needs and capital allocation through scenario and stress testing

      References:

      Risk and Insurance Management Society

      The National Alliance for Insurance Education & Research

      Best’s Review: A.M. Best’s Monthly Insurance Magazine April 2015

      Insurance Business America online magazine


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