InsuranceRisk Management

Rethinking Risk: Who Needs Insurance When You Have ERM?

By December 8, 2020No Comments

Relying on ERM instead of insurance is probably extreme, but robust risk management might reduce premiums.
Have surging insurance premiums got you down? One answer to controlling these costs could be to resurrect your enterprise risk management program or bolster an existing one. This was one takeaway from NeuGroup’s H2 Treasurers’ Group of Thirty (T30) meeting, where one member said his company was unwilling to pay increases in premiums that in some cases have more than doubled.

  • As has been well-documented in NeuGroup meetings this year, premiums—particularly for directors and officers (D&O) insurance—are surging. Premiums already were on the rise at the beginning of 2020 and the pandemic did nothing to arrest that trend. Members in several virtual peer group meetings have said they were seeing rates rise by between 25% and 70%.
  • One peer group member actually balked at a quote 25% more than the year before. He searched for a better price but couldn’t find one. What’s worse, when he went back for the 25% increase, it was now upwards of 50%. “I wish I took the 25% increase,” he said.

Enter the risk managers. Faced with the same problem, the T30 member said his plan to mitigate the increases was to cut coverage and concurrently resurrect the company’s ERM program to help prevent insurance events from happening in the first place.

  • “We took much less coverage than in the past,” the member said. “And then took this opportunity to reinstate the ERM program and pay more attention to process controls and the like.” He added that he felt the company was “in good shape” following the change.
  • Another member took a similar tack, using ERM to flesh out “what risks can break our company.” This exercise, he said, would better inform them as to “where to spend our insurance dollars.”

Getting out front. The idea of getting ahead of risks is gaining currency, not just in ERM but in internal audit, too. This means IA and ERM would need to be part of strategic discussions. One ERM member said one of his goals for 2021 was better decision-making across the company and management.

  • “Better decision quality can be affected at all levels,” the risk manager said. He added that he was going to “pitch a decision-making plan” to management, hiring a third party to educate the management team and others.
  • Echoing this sentiment, one internal auditor in another meeting said recently that her IA shop was “moving away from the traditional way of auditing and asking questions ahead of big decisions.”
  • “We want to drive the behavior instead of chasing things down in an audit later on,” she said. “When you’re there at the beginning, it makes it easier.” She brought up an example of systems implementation and offering advice on how it should go.
Justin Jones

Author Justin Jones

More posts by Justin Jones