F


or risk managers affected by catastrophic losses, 2011 highlighted the importance of always being prepared for the worst. While some will have coped well, for others it should represent a wake-


up call, argues Deborah M. Luthi, president of US representative body the Risk and Insurance Management Society (RIMS).


“2011 was really unusual. It was a wake-up year for organisations thanks


to the incredible amount of unanticipated events occurring,” she says. “We need to help our organisations to identify and address possibilities we think will never happen, but very well might.”


Luthi believes risk managers must take a more prominent role in their


organisations and become more involved in strategy. By doing this, she believes they can improve companies’ overall management practices to limit exposure to risk and identify future risks earlier.


One area that particularly needs more attention is the supply chains


many companies are so dependent on. A disaster affecting a company in one part of the world can have knock-on impact on many others. “Because of the natural events that we saw occur in 2011, risk managers are now very aware of this kind of risk,” she says.


As more businesses move large chunks of their operations online, Luthi notes


that ‘cyber risks’ are another issue moving up the agenda for risk managers. “More businesses are out there in the clouds of the Internet, so cyber


risks are going to become increasingly important, especially given the rise in use of things such as social media,” she says.


REPUTATIONS AT STAKE Luthi also offers a pertinent reminder to risk managers that their actions


often have implications way beyond directly predicting, assessing and insuring risks. Companies will also be under scrutiny for the way they are seen to deal with these problems. “If we are not able to handle those risks well, then it becomes a reputational risk as well,” she says.


On top of this is a whole level of risks which are almost impossible to


predict and manage. Organisations must take account of some of the socio- political issues they face. 2011 was a year of great social upheaval, with the so-called Arab Spring changing the political landscape in many countries, while there has also been significant civil unrest in several parts of Europe.


Meanwhile, many economists acknowledge that the balance of world


power is moving from west to east. It is a risk manager’s job to remain aware of such changes and advise their boards, chief executives and owners accordingly—in terms of the challenges and opportunities they present.


“We have many member companies carrying out business internationally,


so it is very important we stay on top of any such shifts in influence,” says Luthi. “RIMs is very aware of what is going on and provides education and thought leadership on such issues. We also help facilitate networking and bringing risk managers together to share information.


“This growth in emerging economies presents a great opportunity for RIMs. As we extend our reach geographically, we want to let companies from emerging economies know how they could benefit from the work that RIMS is doing, and from our guidance on how to manage risk effectively.”


In such a dynamic landscape of changing risks, Luthi acknowledges


the important role insurance plays in an organisation’s risk management strategy and the way insurers adapt and develop new products to meet the needs of risk managers. “Insurance products are always going to be needed by risk managers, especially for dealing with residual risk,” she says.


She cites a recent example of how insurers are responding to the


needs of their clients. A recent survey of the biggest risks companies face found that reputational risk had jumped from 10th to third place in a league table of what concerns businesses. In response to this, RIMS endorses ERM as a strategic business discipline to address reputational risk. However, there may well be residual reputational risks which organizations may choose to insure.


“This needs to continue to happen,” she says. “Insurers must continue


to look at emerging risks and see if they can produce products to match them. However, it should really be a partnership between risk managers and insurers. As risk practitioners, we help to identify risks and then insurers look at whether it is possible to underwrite that risk.”


A NEW CHALLENGE Luthi says she has come to understand the importance of this partnership


between risk managers and insurers from her long experience as a risk manager. She recently accepted the presidency of RIMS and will serve a 12-month term. She is currently the enterprise risk manager for the San Francisco Public Utilities Commission and has been a member of RIMS for almost 32 years and a member of the society’s board for 11 years.


“It will be a busy 12 months,” she says. “The RIMS board of directors


and RIMS staff practicing ERM for the society identified the risks that RIMS faces in working to achieve its goals. This has led us to look at our strategic vision and develop a new mission statement, which was introduced under Scott Clark, the past president, to advance risk management for our member organisations’ success.”


Spring 2012 | INTELLIGENT INSURER | 51


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