Think risk, think global

Risk managers can expect their roles to acquire an ever more global perspective in 2013 as organizations become more international in their strategic thinking, and risk management practices are increasingly embraced in other countries around the world.

That is the view of John Phelps, the 2013 president of the Risk and Insurance Management Society (RIMS). The society’s membership is becoming more geographically diverse, he says, in part driven by advancements in technology which allow organizations to transcend borders. Contracts and functions previously fulfilled within the US can now be relatively easily outsourced to other countries.

“Companies that have traditionally been US-based are increasingly dealing with exposures in other countries. As a Society, we need to increase our ability to provide support for risk managers who are dealing globally, and to provide those resources for risk managers in other countries as well,” says Phelps.

He adds that global social, political and economic upheavals will also have a significant bearing on the work of risk managers. Instability in the Middle East, the growing possibility of some nations acquiring nuclear capability and stresses in the global economy are all factors that can have a powerful impact on companies in the US and beyond.

“We need to understand what those effects may be and prepare for them,” he says. “Understanding that environment is part of what we’re focused on this year with regards to expanding our international footprint. The trick, of course, is to do that without sacrifice to our most important programs and services.”

Towards a strategic approach

This year, there will be a special focus by RIMS on the provision of resources, support and training for risk managers, helping them to think more strategically as they look to implement and advance their risk programs in order to produce better value for their organizations.

“We’d like to be able to support that quest for value and enable risk managers to provide it at a higher level in the organization by providing the capability that helps the company reduce uncertainty,” says Phelps. “An organization with less uncertainty will normally make better decisions and increase the opportunity to succeed.”

With this in mind, Phelps aims to help RIMS’ members keep pace with the latest developments in risk management practice. In addition to strengthening the services and support for ‘traditional risk managers’, there will be a focus on enterprise risk management (ERM) and strategic risk management (SRM). Members can expect to see detailed executive reports on these subjects over the coming year.

“They will be very useful to risk managers who are struggling with the question of how to reinvent risk management within their companies into an ERM or SRM model,” he says.

“We’re doing a lot to accelerate the thinking of risk managers, to get them to understand that if they want it, there is an additional evolution within the discipline that wasn’t available to them in the past. This can allow them to move from the traditional risk management role to a more strategic role in ERM that uses an understanding of risk to help the company obtain its objectives.”

Helpful resources include a new SRM Implementation Guide, professional development sessions on accelerating ERM theory into practice, and developing a risk management program for organizations.

The next generation

Another focus of Phelps’ presidency will be the support and development of the next generation of risk managers through the provision of educational programming, networking opportunities and volunteer positions at RIMS. Social media will be used to help connect members and to increase the use of the RIMS website (www.rims.org) and related resources.

“Risk management as a business capability allows us to make more reasoned decisions and make us more competitive—that’s where the value is released in an organization.”

“The future of the risk management discipline really hinges on the next generation, and RIMS is making a commitment to them,” he says. “The Young Risk Practitioners’ Group is something we will continue to emphasize this year. Its members are between the ages of 22 and 35. They’re bright, energetic and eager people pursuing careers that will provide significant influence in their companies.”

Phelps began his career as an insurance broker, but after 10 years he decided to change tack and step into risk management. To do so he had to take a pay cut and give up his company car and large office, but he says he hasn’t looked back since.

“To succeed as a broker I needed to sell insurance and sometimes that wasn’t the most appropriate solution, so I decided to make the change,” he says. He moved into risk management with Blue Cross Blue Shield in the Rochester New York area and developed his career from there, moving to Blue Cross Blue Shield of Florida 23 years ago.

During that time he has been able to reinvent the risk management strategy of Blue Cross Blue Shield into an ERM responsibility. His experience of this transition leaves him well placed to help RIMS members evolve their practice along similar lines.

Demonstrating value

“We are developing tools, white papers, case studies and other resources that will help risk managers demonstrate their value to their organizations at a higher and more strategic level,” he says. “When risk managers demonstrate a business capability, they are supporting the development of strategy for their organization and that’s what the ERM and SRM practice is all about. Risk management is designed to reduce the uncertainty associated with long-term strategic risk.”

Phelps adds that risk managers truly demonstrate their value when they give their company a level of insight that reduces uncertainties and therefore aids the decision-making process.

“I’ve never run into a company executive who said he or she would like to have more uncertainty when making a decision and that’s really the basis on which risk management as a discipline provides the greatest value to an organization,” he says. Phelps believes that a better understanding of the risk associated with a process, change or new product enables a company to make better decisions and be more successful.

“The reduction of uncertainty is simple logic and that’s what the risk management discipline can bring to the company in a structured and organized way. The discipline needs to be understood and used by leaders and managers on all levels of the organizational hierarchy. The notion of risk as something to be understood from all perspectives and something to be managed, drives better decisions, that in turn will allow the company to become more competitive.

“If, for example, I can help my company understand the risk associated with a new product or service better than our competitor, then maybe the competitor needs to be a bit more conservative and my company can safely turn the throttle up just a bit to provide a slim market advantage. Risk management as a business capability allows us to make more reasoned decisions and make us more competitive—that’s where the value is released in an organization.”

John Phelps on contingent commissions

“RIMS’ feeling about this hasn’t changed in many years and is not going to change in the future, certainly not under my administration,” says Phelps. “When someone who sells insurance to a risk manager receives income from any other source other than that risk manager’s company, it’s a conflict of interest. It may be legal, it may be that everybody does it, but it’s a conflict of interest and it shouldn’t be done.

“The control point on that is the risk manager. It’s evident that there isn’t interest from insurance companies and brokers to fix this conflict, so it has to come from the risk manager who should require this transparency and understanding of all income sources before placing any insurance with a broker.”