Global Risk in Today's Business Environment

To succeed in the global economy with significant threats such as terrorism, companies have recognized that they need to be more security conscious, consumer-responsive, and service-oriented. This strategy demands an evolution in their business environment. Specifically, existing lines-of-business have to be transformed into integrated, enterprise wide, information-oriented units. In turn, these retooled businesses can help achieve a variety of key goals including: 

·          Increased security.

·          Maximized profitability.

·          Creation of a client-focused orientation.

·          Integration across business lines to achieve economies of scale and maximize customer service capabilities.

·          Lowered technology development and maintenance costs.

·          Greater flexibility for easy entry into new business lines to address emerging growth opportunities. 

As a result of the current business environment, various industries are adopting new risk management strategies on an enterprise wide basis.  The process of risk management consists of several distinct steps including risk identification, measurement, monitoring, reporting, and execution. 

Risk Identification 

Gathering information is generally the responsibility of the insured organization who then sends the information to a broker or other vendor.  Typically, the company keeps the information in static files and spreadsheets and may update them once at year when their broker asks them to update the information.   

This static form of risk identification is eliminated with advanced solutions.  Each risk profile is dynamically saved and linked so that any participant in the process may determine and obtain their unique requirements.  Any unique risks are integrated seamlessly into the mainstream process of risk management.  For specific clients or processes, the challenge is to clearly identify the key elements of the risk.  Global organizations have additional challenges to maintain a consistent database of information.  Local currencies need to be convertible to a base currency for financial reporting purposes.   

Risk Measurement 

When risks have been clearly identified, then the quantification process commences.  A client usually sends their risk information to brokers or other vendors to determine risk costs (premiums or other related costs).  An overall strategy is developed to mirror the business’ tolerance for risk (deductibles or self-insured retention) and the broker or vendor quotes a specific solution.  Advanced platforms offer the participants (business, broker, insurance company, reinsurance company, capital markets, etc.) the opportunity to measure the current and future costs in a dynamic and linked way.  Then, the risk bearing company is best able to determine what the current and future risk costs will be and is better able to plan and finance those costs.  By opening the “black box” to everyone in the process, redundancies and costs are eliminated and all participants are better served.  The risk bearing company receives the benefits of this form of risk measurement versus traditional forms.  

Risk Monitoring and Reporting 

By linking all of the necessary data in the risk management process, the reporting and monitoring process becomes very simple.  All documentation requirements are met by simply creating a specific report or viewing an electronic form.  The report information may be viewed electronically, and then transmitted in a variety of different forms depending upon the user preferences.  Users are given access to the platform based upon their business requirements.  For example, system administrators will have full access to all areas and claim adjusters may only have access to the claim functions.  Since the participants are not struggling with processing the information when they use the platform, monitoring and reporting the activity become more focused on the quality of the content.  Effective strategies and tactics are developed to address all risk management issues. 

Risk Management Execution - Finance and Administration

To develop effective strategies to address the business risk issues, managers need a dynamic information flow from all participants in the process.  Solutions should allow a seamless flow of information so that specific earnings or cost impact scenarios may be analyzed before they are deployed.  A continual flow of information is required to make individual judgments on particular risk issues such as market risk, underwriting program design, or claim management.

Summary 

Sophisticated risk management services and tools allow companies to capture the information necessary to measure and manage these business and operational risks.  The rewards to the investors and stakeholders are potentially significant. Not only will the organizations outperform their competitors in the industry, providing above average returns to their investors, the company’s customers will be served with safe, reliable sources of products and services to meet the demands of a complex world.  

Blackburn Group, Inc.
Penfield, NY 14526-0052
(585) 586-4530,  (585) 586-7479 fax,  Email: sales@blackburngroup.com
  Copyright 2006 Blackburn Group, Inc.  All rights reserved.