Conflicts in Risk Management Practices & Thinking

Of all the companies who have designated positions with the title of "risk management" roughly 80% of those positions are nothing more than a function to purchase insurance and oversee loss control initiatives. The other 20% is a mix of Chief Risk Officers whose elevated role expands the risk management function to finance and legal across all operating fucntions of a large corporation. Then there are management consulting firms offering "Enterprise Risk Management" services and other segment labeled risk management services such as "Financial Risk Management, Supply Chain Risk Management, Capital Risk Management etc etc.".

When you examine the market of "risk management practices" it becomes obvious that the very nature of related practices and parties has and continues to cause channel conflicts which rob effective application of the theories and practices of risk management. In an effort define both the definition of risk management practices and the channel conflicts we conducted a survey of 100 companies representing medium and large corporations throughout North America. We also examined industry trade presses and segment specific groups or associations promoting "risk management". The survey results of the 100 companies ( surveys of the executives) showed the following:

60% indicated that risk management is about managing insurance cost and internal loss control initiatives
20% indicated that risk management is about providing internal and external resources with proper assessment/analysis of related risk and ways to reduce, transfer, control or assume said risk
15% indicated that risk management is about managing capital, financial, compliance and governance matters effectively
5% indicated that risk management starts with the CEO and is about everyone improving "quality" forever and ever

The very differences in the responses clearly show that the definition of risk management and its practices does not indicate that one answer or approach satisfies all segments of interest.

Furthermore an analysis of the issues and writings of industry trade presses and segment specific groups or associations promoting "risk management" showed a variety of different issues and approaches. It is both the differences in definition and the variety of different issues and approaches that create channel conflicts for both the practices of risk management and all the different suppliers trying to serve all the channels.

What Channel Conflicts Exist?

There appears to be a set of seven common channel conflicts when it comes to risk management practices. These include:

Departmental Conflicts (Internal)
Supplier Conflicts (External)
Customer Conflicts (Internal & External)
Leadership Conflicts (Internal)
Strategic Conflicts (Internal)
Self preservation Conflicts (Internal)
Industry Conflicts (External)

Each of these conflicts will be examined thoroughly and released in future writings. For now it is safe to say that these conflicts and the different definitions are the very constraints which prevent a united approach to improving the entire supply chain of risk management and its stature as a critical and measurable value function within most corporation's.

further validation of channel conflicts and a undefined systemic approach to risk management was the results of both the Quality Insurance Congress Survey (1994 - 1996) and the subsequent demise of the non-profit organization. The QIC was formed to help improve the quality of insurance transactions and related services for the benefit of the customer. Remember that 60% of the market indicated that risk management is about managing insurance cost and internal loss control initiatives

It is odd that a non profit organization was formed to improve the Quality of the Insurance Industry because the industry itself recognized that improvements were needed but the customers did not. The assumptions that improvement were needed were further validated by the results of the first "Quality Scorecard" produced by the Quality Insurance Congress. Thus the insurance industry funded its own analysis of customer satisfaction and the results were embarrassing to say the least.

The Chairman of the QIC, who was also the President of CNA Insurance at the time, told the RIMS Executive Committee that if Risk Managers did nothing with the QIC survey results, the QIC effort would be in vain. RIMS and the Risk Managers did nothing and the QIC failed. To this day, as pointed out in the recent "Quality" survey recently completed by RIMS, only 9% of companies have changed brokers following the Spitzer' findings and their own continued complaints of quality from their suppliers. Just 9%!

So why was the QIC dismantled? One perspective is that the actual customer really didn't want improvements enough to speak up and lead with input. Even today according to a July, 2006 article ( http://www.riskandinsurance.com/060701_column_3.asp) while the customer "talks about Quality" they failed to abide by the basic principles that enable quality to be achieved. On March 22, 2006, the Risk and Insurance Management Society, Inc. (RIMS) states that it furthered its commitment to RIMS Quality Improvement Process (QIP) and its guiding principles of integrity, transparency and client-centricity, by hosting the first RIMS Quality Forum. Again, only 9% of companies have changed brokers following the Spitzer' findings and their own continued complaints of quality from their suppliers. Maybe they should have understood what their guiding principles were before having closed door meetings on matters that relate to quality.

When the original QIC Scorecard results were released, several brokers and insurers complained about the scorecard, as their own surveys of risk managers produced far better results. Both scorecards produced basically the same poor results. (As by the way did this latest RIMS survey as well.) For "some reason", risk managers apparently responded differently to the QIC survey than they did to the insurers' and brokers' own surveys. Researchers of the Katie Insurance School at Illinois State University that conducted two QIC quality surveys, said it was very surprising to them the number of calls or notes they received from risk managers wanting to be assured of anonymity for their answers before they completed the QIC survey. The researchers received more of these comments and questions from risk managers than they did for any other survey they ran. In talking to those researchers just this past week, that comment still holds true. More risk managers contacted them to be assured of anonymity in the QIC than other respondents in any other survey they have run. Could it be that in the "private" voting booth, risk managers said what they really thought about brokers and insurers, yet to their face they told the brokers and insurers things were fine. Wonder why the brokers and insurers were questioning the QIC data?

And what is RIMS doing about Quality -- the President states he's vowed to change that one step at a time, and is meeting with individual insurers and brokers to ask them to commit to quality. The March report of 06 on RIMS Quality efforts proclaims Quality but the very survey results were developed using a non-scientific approach to defining and measuring quality issues. Additionally the RIMS QIP initiative is ill conceived approach to solving systemic issues that cut across the entire insurance delivery system.

It as been thirteen years since the original QIC was formed. It appears as though nothing has changed in terms of the customers input into the improvement process or their ability to lead the insurance industry towards constant improvement. If the customer cannot define quality how can its supplier expect to improve?

Maybe the greatest channel conflict that prevents significant risk management progress is the so called risk managers themselves.