ShareThisPlanning is Power
Charles M. Chamness | President & CEO, NAMIC
Warren Buffet, the world’s second richest person, amassed his great fortune partly by thinking smart, partly by luck, and partly by understanding the logic of “risk comes from not knowing what you’re doing.”
By the end of the 20th century, insurance companies had become adept in measuring exposure to hurricanes, earthquakes, and other natural disasters with a greater degree of precision, which led to greater confidence in our ability to manage risk.
But nothing prepared us for the first few years of the new millennium. Terrorist attacks. Devastating hurricanes. Violent tornadic and flood events. But, our risks didn’t end with Mother Nature and human-made catastrophes. The industry also experienced regulatory and legislative challenges, such as the implementation of certain components of the Sarbanes-Oxley Act and the possible repeal of McCarran-Ferguson.
The insurance industry is a steadfast presence in the United States. In fact, we play an important role in the health of this country, as we are the glue that holds the economy together. We are the mortar between the bricks of commerce. And we are an industry that sticks to the basics as we serve a particular niche…and we do it well.
But NAMIC member companies continue work to do it better.
Corporate America has come to recognize the importance of managing all risks – not just the familiar – and their effects on day-to-day business. Even seemingly insignificant risks have the potential to result in mayhem.
As the market becomes more volatile and competition increases, insurance professionals need a clearer understanding of the risks to protect the physical, financial, human, and intellectual assets of their companies.
Uncertainty has always been a factor in decision-making within our industry, but some insurance companies are seeking ways to effectively manage these potential risks.
At no time in our industry’s history has the adage “Knowledge is Power” been more significant.
Fortunately, all NAMIC member companies have discussed to varying degrees the challenges that could threaten their existence. Before 2001, we might have turned to common sense discussions with our board and senior management about the “what keeps us up at night,” or planned analysis using SWOT (strengths, weaknesses, opportunities, and threats). But today, the industry’s growing threats make a more involved analysis prudent to undertake.
External factors have fueled the growing interest in an important new business trend gaining prominence in the U.S. business community – enterprise risk management.
ERM aligns strategy, processes, people, technology, and knowledge for the purpose of evaluating and managing the undefined risk exposures a business may face.
Last year, Jerry Wollam, president of NAMIC Insurance Co. (NAMICO), spent a month of brainstorming and writing an ERM blueprint for the company. Jerry did a terrific job of outlining the company’s risks and potential risks as well as the steps to diminish them, and then facilitated a discussion of the document with the NAMICO board. Whenever necessary, Jerry revisits this fluid work product to upgrade or downgrade the severity of risks, supplement the strategy implemented to minimize risks, and add any new risks that may have emerged.
For companies like NAMICO going through this exercise for the first time, keep in mind that when this information is provided to rating agencies in summary form, it becomes a benchmark, and the rating organization will look for progression from high risk to low risk in your categories. However, as much as we would like to diminish all our risks, there will always be certain ones remaining in the high or moderate category. It’s just the business we’re in.
Posted: Thursday, May 31, 2007 12:00:00 AM. Modified: Thursday, June 28, 2007 3:49:02 PM.
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