Outsourcing: More Efficient Risk Management?
Pelland, Dave, Risk Management
As companies examine and re-engineer their work processes, risk management is frequently regarded as one of the many functions that companies decide can be performed less expensively or more effectively by outsiders, according to speakers at a meeting of the New York RIMS chapter. The panel, which featured IBM's risk manager and three insurance brokers, agreed that although the ultimate risk management decisions and responsibility should remain within the company, an increasing number of companies are outsourcing many of the tasks that traditionally fall within the risk manager's duties.
Jim Conerty, manager of risk and insurance management for IBM, said that the risk management department was not exempt from the staff reductions IBM made over the past several years. Transferring some functions to insurance brokers allows the company to centralize risk management decisions at the corporate headquarters, reduce costs, develop a consistent risk management philosophy and eliminate duplicate work repeated by the company, its subsidiaries, its carriers and its brokers.
"We used to do mundane things like issuing certificates of insurance or auto ID cards internally, but we no longer have the people to do these chores while conducting risk evaluation and the other things management looks for us to do," Mr. Conerty said.
Throughout IBM's history, the insurance and risk management decisions for subsidiary companies operating outside the United States were left to managers in each country, and insurance was often placed with important customers, Mr. Conerty said. In 1987, IBM had a U.S. risk management staff of 12, more than 50 risk management professionals operating outside the United States and relationships with 225 insurers and 60 brokers. Between 1987 and 1995, staff reductions left IBM with two people handling risk management within the United States and only six people in the rest of the world. Much of the risk management work was shoved onto line managers without the time or experience to do it correctly.
Faced with the risk of inexperienced managers making risk management decisions, IBM shifted most of the risk identification work outside the United States to brokers. "We wanted professionals to come in, look at the risks and give us an understanding of what we should be doing in terms of strategy," Mr. Conerty said. Other functions performed by brokers include claims processing and adjusting for IBM's captive companies. He said the company considered eliminating the corporate risk management department completely, but ruled against that drastic step. "We believe the company has a fiduciary responsibility to its shareholders and partners to retain in-house risk management expertise," he said. "You cannot outsource risk management completely. …