The rising tide of global and interconnected risks that can impact not just large corporations, but increasing numbers of SMEs, means an insurance broker’s risk management role is becoming more important. However, industry stakeholders say brokers can face an uphill battle getting SMEs interested in undertaking any serious risk analysis.
“It highlights to me that we need to think about how we can do it differently and what does risk management actually mean?” said Anthony Pagano, Vero’s head of distribution.
For industry experts, the risk management SMEs would ideally undertake is best described as enterprise risk management (ERM). ERM is the stewardship of a firm’s operational, financial and strategic risks together.
Anthony Wilson (main picture) says ERM is a big broker opportunity. Wilson is an expert in risk management and partner with ABM Risk Partnership (ABM) in Sydney. He also has a podcast show: Mastering Risk Management.
He said some of the big risk challenges facing companies of all sizes include cyber security, supply chain concerns, recruitment and talent retention challenges.
“I think there are probably a couple of things that organizations are yet to master,” said Wilson.
In fact, Wilson said it’s not just mid-size and smaller SMEs where brokers could find clients in need of a general ERM education.
“Looking at upside risk, we still see CEOs and boards talk about risk as just threats,” he said. “But risk is a two-sided corner, it's about the opportunity and if you don't take opportunities your business is not going to be around for very long.”
Wilson said the insurance industry has traditionally adopted the approach of selling coverages for when something goes wrong. He said the industry and its brokers need to change this approach and their clients’ attitude towards risk.
“We need to be saying: What needs to go right and what could go wrong?” Wilson said. “We need to answer both those questions and not just the, ‘what could go wrong’ one.”
He said this means considering the opportunities that come with risks. One way of doing this, he said, is pressure testing a business.
The second hurdle for brokers to overcome, said Wilson, is converting the language of the risk profession into the language of business.
“Risk professionals need to relate to the people they're working with and they need to engage with the business in the business's own language,” he said. “They also need to be commercial and pragmatic while they're about it.”
Wilson said this involves understanding the practical, commercial considerations and competing budget issues driving the decisions made by an SME.
“You need to be a bit more sensible about how you engage,” he said.
That includes avoiding risk management acronyms.
“The insurance industry, like every other industry, has more acronyms than you can poke a stick at,” said Wilson. “It's very hard for somebody who runs a retail business, for instance, to pick up on all of those things.”
For a retailer, he said, talk in their language.
“Talk about stock terms, supply chain costs, warehousing issues and customer sentiment,” said Wilson.
“While ERM may seem like a domain reserved for larger corporations, its principles are universally beneficial,” says an article on the World Economic Forum’s (WEF’s) website. “For MSMEs [Micro, small and medium enterprises], integrating ERM can be the difference between thriving in uncertainty and being overwhelmed by it.”
Begin by securing commitment at the top because involvement of leadership is “crucial.”
SMEs may not have the budget to hire a dedicated chief risk officer. The WEF suggests identifying a good internal candidate and offering them the globally recognised ERM certification training.
Develop policies and procedures for risk management, including defining roles and responsibilities.
The WEF says risk champions are designated professionals across each department responsible for periodic risk identification and implementing risk management policies.
Identify, analyse and prioritize risks and develop appropriate response strategies.
Implement a system to continuously monitor and report on risks.
Are you an insurance broker? How often do you talk about risk management in a serious way with your customers? Please tell us what you talk about below
