“Every job looks easy when you are not the one doing it.” – Jeffrey Immelt
After working shoulder to shoulder with risk managers for more than twenty-five years, I both have tremendous respect for the importance of their Swiss Army Knife-like roles and find them to be often unsung, misunderstood, and underappreciated.
Recently, risk managers have been measured more by the delta between budget forecasts and the realities of the hard insurance market than their impact on profitability and enterprise value. While I find focus on insurance spend of little use, I attribute this reality to factors beyond corporate belt-tightening: miscommunication and lack of data.
While insurers ground their commercial property lines of business via TIV, replacement costs, and AALs, executives see the world primarily through the lens of finance--almost all their performance indicators are defined by EPS, NOI, and FFO, in particular. Best-in-class risk managers are fluent in both languages and equally as effective in a renewal roadshow as a presentation to their board of directors. By combining experience and data, they understand and manage the relationship between risk transfer/retention, profitability, and enterprise value.
Here in my adopted home state of Tennessee, a large manufacturer was able to drive down its total cost of risk (mostly via a proactive workers comp strategy) and in turn, reduce the costs of goods manufactured (COGM). The impact on the bottom line allowed the factory to drive significant improvements in production, profitability, and profile.
The key takeaway here is that aligning with your organization’s most important metrics AND demonstrating the impact are both necessary for the best possible outcome--insurance is the means to the end rather than the end in itself.
While this is straightforward, it’s not simple and the risk managers who do it well are seen as strategic and indispensable...much more than a cost center or line item in a budget.