Magazine article Risk Management

Changing Face of Risk Management: Greater Emphasis on Financial Skills

Magazine article Risk Management

Changing Face of Risk Management: Greater Emphasis on Financial Skills

Article excerpt

As more organizations adopt integrated approaches to risk management, the function is evolving into a more important part of their overall financial strategies, according to several speakers at a recent forum. As a result, a greater emphasis is being placed on the ability of risk managers to understand and communicate the financial effects of their efforts.

"Risk and risk management are very visible today and are becoming higher priorities to senior executives," said Thomas R. Tizzio, president of American International Group, at a seminar sponsored by Johnson & Higgins. "Risk management is increasingly becoming finance-oriented, and there is higher demand for customized risk management solutions."

"Treasurers and risk managers are talking to each other more than they have historically," said Frederick J. Chapman, group treasurer at Lucas Varity. "Risk managers are playing a larger role in the financial structure of the company, and their productivity is being measured more closely."

As a result, many companies are establishing a stronger link between their insurance and financial strategies than was the case five years ago, according to Ken Zignorski, senior vice president of Johnson &Higgins Strategic Risk Consulting. "We're seeing more demand for comprehensive risk analyses that address the cost-effectiveness of insurance and the possible effects of losses on share prices," he said. "Companies are paying more attention to their aggregate retentions and their ability to finance loss."

Part of the reason that risk managers are being asked to become more involved in treasury operations is that the definition of risk is expanding. As fewer companies segregate exposures into traditional categories, they are taking a broader view of events or conditions that can affect their financial results.

"The basic questions that arise after we identify something that can threaten our business are `can we do anything?' and `what will it cost?' In most circumstances, risk management involves quasi-investment decisions," Mr. Chapman said.

That does not mean, however, that all exposures should be treated with the same measures, said William J. Kelly, managing director of J.P. Morgan. Risk managers can add considerable value to their organizations by selecting and applying the most effective mitigation techniques to various exposures. …

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