Posted tagged ‘strategic risk management’

Self Perpetuating Pessimism – Just the Opposite in Insurance

January 29, 2012

Things have been bad.  The results have run against your strategy for some time now.  So you pull back.  Derisk.  Leave the game.

That may be the most prudent decision, or it may be simply self perpetuating pessimism.

Others may not share that pessimism.  Others may see opportunities in the chaos that has caused your losses.  Others are doubling down.

But how to know?  How to tell whether it makes more sense to move on or to stay in?

Sometimes, you cannot tell.  There is no indications whether the next day or the next year will be even worse than the last or whether it will be a big step on the road back to prosperity.  The most important element to determining that may not be something neutral in the environment.  It may be the mood of the people.

“The only thing to fear is fear itself”

The actions of the crowd to pull back all together cause or at least accentuate the very poor environment that the actions were meant to protect against.  It is a classical negative feedback look.  The poor results cause people to pull back that causes more poor results.

That is the way that an investment market works.  But an insurance market works just the opposite.  Optimism makes more people to rush into a market.  It causes the rates charged for a risk to go down because of competition.  It causes underwriting standards to deteriorate.  It encourages more and more of the underpriced misunderwritten business.  Pessimism causes insurers to withdraw from an insurance market.  Less competition allows rates to rise.  Pessimism makes insurers set the minimum rate at which they might write some insurance higher.

In insurance when the crowd deserts a market, the few who remain are suddenly able to raise rates to sustainable levels and beyond.

So why does it take so long for insurers to react to soft rates and leave markets?   They all know the game and all want to be the ones who are left when the rates get hard. So insurers are playing a few moves ahead.

For some reason, investors, who consider themselves to be much more sophisticated, only seem to be looking one step ahead.  Or at least the crowd does.  Maybe the real sophisticated investors ARE playing several steps ahead.  They will never let you know that.

What’s Your Philosophy?

December 15, 2011

Strategic Risk Magazine has a piece with interviews of a dozen risk managers.  Once question was “What’s Your Philosophy?”  Here are the answers that they received:

Risk management is a fantastic career opportunity as it gives people a very broad and deep perspective on the business through strategic and operational involvement, dealing with people at all levels in an organisation.

Reed Elsevier chief risk officer Arnout van der veer

Risk management now is a career option – it wasn’t when I first started down this route. Certainly the world today is a riskier place and there is a demand for professional, competent people. You need to be qualified in a relevant discipline (business studies, economics, and so on – financial and economic literacy is key) and consider one of the excellent MBAs now available.

DLA Piper chief risk officer Julia Graham

My philosophy over the years has been to take new opportunities as they arise. The job is what you make it, using your skills and competencies.

Morgan Crucible director of risk assurance Paul Taylor

To be an enterprise risk manager, you need to get a solid grounding in business and management at different levels. It’s not an entry-level job.

Ferma vice-president and GDF Suez deputy chief risk officer Michel Dennery

There are uncertainties in everything we do, and hence a career in risk management provides the opportunity to explicitly do what everyone intellectually knows must be done. Further, the concept of uncertainty provides an intriguing angle from which a company can be addressed.

LEGO senior director, strategic risk management Hans Laessøe

You have to care – about jobs, the health of the employees, the health of the factories and the health of the business.

Ferma president and director of risk management for Pirelli Worldwide Jorge luzzi

If you are able to communicate to your colleagues the concept that a risk manager can help the company’s business, protecting profit margins and business continuity, and they understand this, risk management is a really enjoyable job.

Prysmian group risk manager  Alessandro de Felice

My motivation is to create value to my organisation by ensuring that we can deliver what we promise to our customers and shareholders through a well-functioning risk management process.

Assa Abloy group risk and insurance manager Fredrik Finnman

Risk managers should built professional skills over the following pillars: knowledge of risk measurement techniques; knowledge of the company’s processes; skills in spreading the risk culture inside the company; knowledge of the insurance business and risk underwriting: skills in leading internal working groups and designing procedures and control processes.

Telecom Italia corporate risk manager Paolo Rubini

Risk management is about managing risks inherent to the business, so it is critical to understand your business. Moving the company towards a different way of thinking about risk is all about change management and leadership. It’s important to share thoughts and experiences with other colleagues in the field. Attending professional and international events, such as the Ferma Forum, specific seminars and courses to meet other practising risk professionals is a good way to do this.

Campfrio Food Group director of corporate risk management and Ferma board member Christina Martinez


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