Climbing the Risk Management Mountain
The pursuit of risk management is in some respects like climbing a mountain.
Your choice of the risks that you will plan to manage (rather than avoiding or eliminating) is like your choice of mountain. Some mountains will be more difficult to climb than others. Some have well worn paths to the top. And sometimes there is a shift in the weather than makes even the most traveled path unusually dangerous.
Some folks have been living on the side of their mountain for generations. They considered that they are the experts of that particular mountain. But then one day, a band of outlanders shows up with new equipment and takes a new route that takes them higher up the mountain than any of the locals have ever gone. Sometimes, however, those outsiders only look like they are going straight to the top. Sometimes they are stopped short by perils that the locals knew well. With risk management, there have been firms managing some risks for a long time who have been brushed aside by competitors with rocket scientists. Some of those rockets took the firms right to the top, others flamed out along the way.
There are many ways to approach climbing a mountain. Some choose the southern route, others the northern. And many different places to stop the climb and declare success. For some risk managers, the climb may stop when the largest one or two risks of the firm are separately under control. Others will seek to reach the spot on the mountain where the capital model can be found. They undertook climbing risk management mountain to get a handle on managing their capital. A third group will stay unswervingly on the path that is laid out with the railings and signs put there by the regulators. They seek only to achieve the point on the mountain of regulatory compliance. They do not seem to care that standing for too long on that spot may not be safe in all weather either. The final group is looking to get to the top of the mountain, to stand on the highest pinnacle. They feel that mastering risk management can only be done if they are standing on top of all of their risks at once. They feel that any other spot on the risk management mountain is not for them.
Having spotted the place where they want to end up, many people stand transfixed by the immense task ahead of them and fail to start. They do not see any way that they can get from where they are to that remote point up the mountain that is partially obscured by the clouds. They see some others already at those points and cannot figure out how to jump right up to join them.
They sometimes do not realize that those who are already far up the path got there most often by focusing instead on the next step, rather than on the endpoint. Some of those who are far up the mountain may in fact have started out to reach a different point and made corrections to their ascent path as the realized the conditions as well as their own capabilities.
Others who already live part way up the mountain are confused. They are looking at the instruction manual for climbing this mountain. The book always starts at the bottom of the mountain. And it assumes that you are someone who does not already own some (possibly most) of the equipment needed for climbing. The whole thing seems impossible to make sense out of for you. You are not even going to consider going to the bottom of the mountain and leaving all of your equipment and expertise behind.
Most insurers are in the position of the villagers living on the side of the mountain. They are getting instructions to start at the bottom of the south side of Risk Management Mountain, while they live on the north. What they need is not generic instructions. What they need is instructions that start with what they know and with the equipment and experience that they have. They need to know the best path to get to the place where they want to go from where they are.