Emerging Trends in Risk Management: From the Insurer's Perspective: An Interview with Brian Duperreault, President and CEO of ACE Limited

By Scordis, Nicos | Review of Business, Fall 2003 | Go to article overview

Emerging Trends in Risk Management: From the Insurer's Perspective: An Interview with Brian Duperreault, President and CEO of ACE Limited


Scordis, Nicos, Review of Business


ACE Limited, headquartered in Bermuda, provides a broad range of insurance and reinsurance products to insureds worldwide. Through its various operating subsidiaries, ACE Limited operates in the U.S. and "almost 50 other countries.

Q. These days, when corporate risk managers talk, it is fashionable to speak of "Enterprise Risk Management." As a provider of insurance products and services, how do you envision the "Enterprise Risk Management" concept?

A. We as a company have formed an enterprise risk management unit. When we looked into it, we found that other industries, particularly the banking industry, are much further along in this concept than the insurance industry. It's almost like the shoemaker's children not having shoes. Here we are making a living taking risk and understanding risk, and yet we couldn't find any insurance company that had anything more than an embryonic enterprise risk management function. So I think it's something that is evolving.

Enterprise risk management is an appropriate process for harnessing all the different components of what a company does and evaluate how they interact, and the amount of risk each one of them brings to the organization, in order to maximize the company's capabilities. We assume, of course, that risk is not bad; if risk is bad then you shouldn't do anything. Risk is good if you understand all the components of risk the company has and harness them. When you are taking risk, you should be taking it with eyes open and you should be getting value for the risk you are taking. There needs to be an appropriate exchange for the risk you are taking. A lot of times, there is risk you do not even know about, and you are not getting paid for it--which makes you wish you did not even go down that road. So I see enterprise risk management as an inventory practice of gathering all the components of risk. This is an initial phase and it's going on in our company and other companies. We are developing a true understanding where all the risks are. But then we have to do something about them. This is the part that has not yet evolved sufficiently: the process, the modeling, the theory behind the choices you have to make to harness all the components of risk, and actually effecting some kind of action as a result. That's where the value of enterprise risk management will really come to the fore. Right now it's not gotten there.

Q. The different activities of the firm cause fluctuation of cash flow. The source of the fluctuation can be anything from a fire in the hallway to selling products as a monopolist. We can look at all these activities as components of the risks an enterprise faces, and we can control these risks in a unified framework in order to meet cash flow targets. This is another view of "Enterprise Risk Management." Is it appropriate for a film to manage risk in this fashion? Who benefits?

A. Well, you manage these risks or not, but the risks are still going to be there. You ask is it appropriate to manage these risks? 1 don't see what the alternative can be. Even more important is to have a solid understanding of what risks your actions are creating, and what events out in the environment might impact your business. Maybe there are some risks you can't possibly manage. So I do not think that enterprise risk management should be defined as a complete management of all risks. What we should rather do is understand what the risks are, and then manage all those you can. And by managing I mean minimize unprofitable risks to the extend that you need to, to make them profitable, and maximize the risks that are giving you the best rewards. You can't control every risk but you at least must have a concept of what your risks are and how they interact with each other.

Q. During the last 18 to 24 months, amid a hard insurance market and regulatory actions in response to corporate scandals, several of the CEOs in the insurance industry changed. …

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