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Risk managers to move beyond ERM toward resilience

risk management

CHICAGO – Risk managers can contribute more to their organizations’ success if they make them more resilient rather than focusing on traditional risk management techniques, a panel of experts said.

While risk financing remains an integral part of a risk manager’s job, working on issues such as supporting mergers and acquisitions or improving cash flow can enhance their positions within their organizations, they said.

And brokers can support risk managers in resilience efforts by providing insights in addition to insurance placement services, they said during a panel discussion Thursday at the Chicagoland Risk Forum, sponsored by the Chicago chapter of the Risk & Insurance Management Society Inc.

Scot Schwarting, St. Joseph, Michigan-based director, enterprise risk management, at health care technology company R1 RCM, said his position has changed significantly since he was hired in 2017.

“I was hired by R1 RCM for enterprise risk management, and we’ve completely changed that into business resiliency,” he said.

The company has grown rapidly through acquisitions over the past six years, and the risk management department is constantly dealing with new issues, Mr. Schwarting said.

The department conducts a failure mode analysis of each of the acquired companies to understand the critical risks they face, what drives them, how they can be measured, the likely severity of a failure and what can be done to prevent it from happening, he said.

“Because we are able to tear down the company and help senior management understand what they have bought, they can make better decisions,” Mr. Schwarting said.

Risk managers who manage well-capitalized captives can also contribute to wider company issues, said Cheryl Brown Baker, Auburn Hills, Michigan-based head of North American risk management at automaker Stellantis NV.

For example, if a company has a temporary cash-flow problem, the captive can pay a dividend or make a loan to the parent, she said.

Risk financing will always be a major role for risk managers, but ensuring that their organizations are protected in other ways can enhance the role of the risk manager, said Richard Rabs, vice president of risk management at Rosemont, Illinois-based Lakeshore Recycling Systems LLC.

Lakeshore is an acquisitive, private-equity-owned company and many of its deals involve “mom and pop” organizations, he said.

Many of the acquired companies don’t have basic risk management protocols in place, such as a safety handbook or cybersecurity protocols, Mr. Rabs said.

“Because of the growth, because of these opportunities, we have a seat at the table, and I think that as risk managers that’s what we all strive for,” he said.

Brokers can help risk managers improve their value to their companies by providing analysis that goes beyond risk placement services, said Geoff Hatfield, chief strategy officer at Hub International Ltd. in Chicago.

For example, an analysis of the average combined ratio of most large insurers shows it is lower today than at any point during the long soft market prior to 2018. A combined ratio of under 100% indicates an underwriting profit.

“Why are we driving this narrative that carriers need more rate?” he said. “As a broker, we have got to be providing insights that are not being talked about, because the rate environment actually is pretty adequate right now.”