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NOTTINGHAM, England-A new industrial revolution is taking place, and risk managers, insurers and brokers must prepare to meet the challenges such change is bringing.
Businesses are entering the third industrial revolution, a revolution driven by technology, markets, entrepreneurship, demographics, globalism and environmental change-and risk management is in the center, explained Tom Cannon, chief executive of the Management Charter Initiative and visiting professor of business at Kingston University in the United Kingdom.
As this revolution brings market and social turbulence and new opportunities, organizational structures and management systems, the changes will result in new risks.
The professor was one of several speakers who addressed the Assn. of Insurance & Risk Managers' 1997 annual conference, entitled "Leadership-New Frontiers for Risk Management," held last month at the East Midlands Conference Center at the University of Nottingham.
AIRMIC Chairman Derek Brighton told attendees that insurers must move from a "neat package" approach to risks and policies and adapt to changing organizations.
Also, as layers of management have been reduced, it is more important than ever for risk managers to truly understand their organizations, he said.
Mr. Brighton, head of the group insurance and risk department at Reed Elsevier (UK) Ltd., warned risk managers and insurers that their future is bleak if they do not address the challenges they face.
"For a risk manager, proactivity and planning for the future has to be at the forefront," he said. "I believe risk management is at a watershed.
We can create for ourselves a wonderful opportunity-or risk seeing our role become marginalized by failing to grasp the initiative."
Risk managers in the United Kingdom already are seeing new risks from the changing corporate governance requirements, pointed out Mr. Brighton.
And U.K. companies in general still have "spectacular failings in this crucial area of risk identification and risk control," Mr. Brighton added.
The impact of changing management structures, highlighted by Mr. Cannon, also concerns risk managers.
"Organizations may be leaner and meaner, but this often means greater exposure" to risk control failure, he said. With fewer staff doing more work, some risks may not be receiving sufficient attention.
But is the insurance community keeping pace? The recent frenzy of mergers and acquisitions may have shifted the focus away from the customer, and the long-term impact has yet to be identified.
"Will they have a negative impact on the availability of capacity and levels of service?" Mr. Brighton asked.
Mr. Brighton criticized the insurance industry's short-term approach and its thinking "in terms of neat packages of risks."
In particular, the industry should address the problem of the insurance cycle and outdated products and instead think of long-term relationships and innovation.
"Our message is simple," he said. "Change your mind-set. Be innovative, be bold-and dare to be different. Above all, please listen to us."
Another speaker at the AIRMIC conference, Ron Forrest, chairman of Aon Risk Services, talked about other trends facing the risk management and insurance industries.
He called the growing securitization of risk a trend that will continue into the 21st century and cited insurers such as ACE Ltd. and Mid Ocean Ltd., both based in Bermuda, as a reflection of the convergence of insurance and capital markets.
Every day, the capital markets conduct about $3 trillion in transactions, compared with total insurance industry capacity of $25 billion to $50 billion.
Certain risks are just too big for the insurance market to bear currently, and the capital markets are able to accommodate them, Mr. Forrest said.
Another trend Mr. Forrest identified was shorter distribution chains.
"The market will not tolerate inefficiencies," he warned, and capital sources fluctuate.
Finally, the electronic age is "a very, very powerful factor going forward," said Mr. Forrest. At some point, brokers will be able to place business from their desks with insurance companies around the world, but the client also will be able to do so, leaving a question mark hanging over the future of brokers.
And the increasing move toward self-insurance must also be a preoccupation with brokers and insurers.
In order to face this and other challenges, the insurance industry must unite, Mr. Forrest said.
"It is very difficult when considering major issues to see how it can be done in a fragmented market. . . .Somebody has to speak on behalf of the whole industry," he said.
But risk managers also need to play their part, advocating risk management within their businesses. It will be a future role and challenge "to increase acceptance and the authority of risk management," he concluded.