What do you get when you put "plain old risk management on steroids?"[@@]
Enterprise risk management, quipped James Kallman, president of Kallman Consulting Services, Lakeway, Texas, who then talked about the importance of using the new, "more holistic, ERM approach to managing financial and strategic risks.
Kallman and other insurance experts discussed the new approach here earlier this week during KPMG L.L.P.'s annual insurance industry conference.
Don Watson, vice president of enterprise risk management with ACE, Hamilton, Bermuda, said good reasons for an insurer to implement ERM include the need to identify risk and the need to establish a company's appetite for risk.
Watson cited the risk that a court battle over a claim dispute could hurt an insurer's finances and reputation as an example the importance of broad efforts to assess risk. "We are selling our promise to pay," Watson said. "The minute that is called into question, then it raises questions about the viability of a company."
Watson gave real estate investments as another example of the value of ERM. An insurer might say it invests in real estate because of opportunities in that market, but a more useful answer would address why a company could accept real estate market risk and how that risk relates to a range of investment risks, Watson said.
Gideon Pell, chief risk officer at New York Life Insurance Company, New York, said the rating agencies are taking more of an interest in ERM. In fact, he added, he had just come from a meeting with Moody's Investors Service, New York, about the issue.
Pell talked about the shift toward "stochastic" testing of large numbers of possible risk scenarios and away from simple risk-estimation formulas.
