ERM just got easier

Rough Notes, Jul 2003 by Moody, Michael J

New product eases integration of diverse risks

For a variety of reasons, there appears to be a growing interest in moving to a holistic approach for risk management. A key reason for many corporations to consider the movement to a holistic or enterprise risk management (ERM) approach is the increased responsibility at the board level. Recent financial meltdowns of some of the country's largest companies continue to emphasize the board's responsibility in overall risk management oversight. Enactment of federal standards such as the Sarbanes-Oxley Act has also left many board members and corporate executives requesting an enhanced view of risk management.

Additionally, some corporation executives see the overall business advantages to an enterprise risk management approach. Their view is that enterprise risk management "just makes good business sense." It can serve as a foundation for better strategic and tactical decision making.

Regardless of a corporation's motives for establishing an ERM program, the implementation is slow in catching on. Despite noble goals, there are some serious impediments to structuring such a program.

Roadblocks to implementation

For the past several years, Tillinghast has surveyed a number of insurance companies to determine their progress in achieving the ERM concept. In general, the insurers have been committed to an ERM approach, and many can "clearly see the value of ERM as a business management approach." However, the insurance executives surveyed have "expressed dissatisfaction with most of the tools and processes available to them to identify, measure, and manage the risk sources that they include within the scope of ERM in their companies."

A similar observation has been noted in surveys of the financial services sector that have been completed by PricewaterhouseCoopers (PwC) over the past few years. Their last survey, for example, found that "just under half the respondents remain dissatisfied with the measurement tools at their disposal." Further, "85% see aggregation of data across business lines as an area for improvement."

Technology to the rescue

As ERM moves forward, it has become increasingly clear that data management and analysis will be among the most important ingredients. Technology will be critical to a company's ability to expand the role of risk management. Accordingly, the use of a state-of-the-art risk management information system (RMIS) will need to be a core component to any advance within an enterprise-wide risk management program. As a result, a number of RMIS companies have aggressively sought to develop a methodology to incorporate an ERM approach into their products. Success with this challenge has varied from company to company. However, one company's risk management information system has distinguished itself from its competitors. The company, Atlanta-based Risk Laboratories, LLC (RiskLabs(R)), is a firm that has been providing RMIS products and services to corporate and public entity clients since the early 1990s. Originally, their system was born out of a frustration with the property and casualty insurance industry's inability to develop a common data standard, as well as the absence of software that would allow custom configuration at a reasonable price.

Currently, RiskLabs offers two approaches to its risk management information products. Their product line includes:

RiskConsole(R), which is a Web-based application that provides an Internet browser-based solution to a company's RMIS needs. The actual application, as well as the data, is housed a the RiskLabs data center and, as a result, allows access via any PC using standard browser software. By using the RiskConsole model, a company can have its data provided from third-party vendors submitted directly to RiskLabs data center for conversion. This allows the risk manager easy access to his or her data in order to perform complex analysis.

RiskFolio(R) is designed to meet the demands of those companies who wish to use their own server. For this reason, RiskFolio software is installed on the client server and stored within the client company's data storage facility. RiskLabs also hosts the data on their servers for some clients.

These products have been among the industry's best, winning Risk & Insurance magazine's "Product of the Year," four years in a row. Despite the significant success with their RMIS, the company realized that something was still missing. While their RMIS was collecting significant amounts of useful data, clients were not able to take full advantage of this comprehensive collection of information. RiskLabs introduced "Enterprise Risk Assessor" as an integrator of this diverse data.

The missing link

"Welcome to THE NEXT LEVEL" was the ad campaign that RiskLabs unveiled at the 2003 Risk and Insurance Management Society's (RIMS) annual conference in Chicago in April. The RIMS conference served as an excellent forum to introduce their newest product offering, "Enterprise Risk Assessor," which RiskLabs describes as the world's foremost integrated enterprise risk management solution. The product combines a flexible risk-mapping tool with the support of a Web-based data management system that encompasses a complete array of risks. Enterprise Risk Assessor will develop detailed risk maps, which incorporate both traditional insurance risks as well as the other risks that companies face for a complete 360-degree view of the organization's exposures. Enterprise risks typically are categorized into operational, strategic, financial, and hazard groups. "The typical RMIS is locked into just the hazard risk, and often just claims, whereas the RiskLabs systems address all forms of risk," notes Russell J. McGuire, RiskLabs' director of consulting services.