It might sound surprising to the lay man that a medical doctor could be afraid of the syringe or a driver is skeptical about travelling on a personal journey by bus or the insurer is pessimistic about writing a business because life is always filled with risks.
A good insurance underwriter is usually measured by his or her ability to pre-empt an associated occurrence and the ability to make use of the necessary risk management tools or technique arranged by the company to tone down the severity of the likelihood of its occurrence.
Therefore, would it be fair to suggest that, every risk manager should be in the position to face their everyday business risk?
This article seeks to explore the underlining factors that may hinder a risk manager from confidently embracing risk as his or her duty and this will be limited to the insurance industry. This is because, this is an industry established with risk management at its core.
The insurance market should ideally be characterized by dynamism in a manner that, every risk in a given class is differently priced, policy wording unique and possible to underwrite. This is because; risks may be identical in categorization and classification and yet, may still be different in exposure.
However, in a market where the underwriting cycle over the decades has not experienced a hard cycle and insurance premium over the decades seems to be asymptotic to the price line, it reveals the systematic fear to the risk taking activity of the risk manager and the insurance market as a whole.
The organizational culture of an institution usually reflects on its employees. It shapes how members of the organization may carry themselves, what matters to them as employees of the organization, how systems of practice are implemented, how issues are discussed and presented.
The impact of an organizations’ culture on its employees I believe has long been underrated. It transcends the behavior or values of the employee during working hours to the extent of influencing the confidence and values they may exhibit unconsciously and consciously outside of work.
The culture of an organization is infectious beyond work and may shape an employee’s way of life after a while.
As a risk manager, it takes a level of courage to embrace risk. It takes courage to write a business the market is publicly refusing to write and it takes courage to hold a different perspective on a given risk.
To charter unchartered waters, requires institutional guarantee and this could be silent or documented.
A silent guarantee is where an institution may as part of their culture encourage members to be forthcoming in their risk management activities and permitted to take on new risk on the condition that they are competent in their capacity and can provide a reasonable explanation for their decision.
A documented guarantee is where an institution provides a framework within which a risk manager may underwrite or make decisions and anything that falls outside these confines may be subject to approval.by higher authority.
In perspective, when an underwriter is presented with a risk, the first thing that might come to mind is to avoid anything that could make him or her personally liable to blame for a loss likely to arise from the risk presented and this is a characteristic of an organizational culture that encourages fear in its business of underwriting and managing risk.
This forces the risk manager to conform to the norm of standard underwriting.
The norm being that, he or she did what any underwriter would on average have done given the circumstances.
However, given the right encouragement and support the risk manager could have manifested his idea and skill to manage the risk appropriately.
This impacts creativity, confidence and adversely affects the insurance penetration efforts of the nation.
This is because as a developing economy, majority of the populace are engaged in the informal sectors and those areas provide the opportunity for the insurance penetration agenda.
Small and medium enterprises require insurance for their businesses.
Products such as social and life insurance, burglary, fire, liability and sometimes bonds.
are essential products to the proper hedging of their businesses and themselves against risks. However, because their businesses are characterized as little in premium contribution, a deviation from standard risks and may have poor housekeeping records, most insurers avoid such businesses.
As risk managers, this is where our creativity should come to light. There is a need for product innovation, customer centered product invention and risk management techniques fully developed to support small and medium enterprises (SME’s).
These are areas that require confidence in underwriting and the culture of the organization may be the key to eliminating all the fears and providing the necessary risk management capacities for the market.
The risk appetite of the organization also plays a role in the confidence with which a risk manager may embrace risk.
The risk appetite of an insurance company is usually provided by the board of directors who are required by their mandate to set the tone of the businesses the company is expected to right for the year.
A risk manager is then provided a copy of the risk classification and categorization scheme upon which businesses may be written.
A risk manager is expected to abide by the scheme and a failure to comply may result in sanctions.
When a board is conservative in nature, it is likely that, the risk manager may be restricted in the risk-taking activity and may be confronted with many bureaucratic tendencies.
In such a scenario, the risk manager is usually not in charge of the risk he or she may underwrite and may need to seek approval with the least risk deviation.
This increases the on-time to customer request ratio and may frustrate any intermediary involved in the process.
Such a risk manager is informally known and enshrined in the memories of all intermediaries as not a decision maker.
In the event of any significant business that may demand a thorough overview or consideration, intermediaries are less likely to involve such risk managers and their respective institutions.
In perspective, the underwriter is on a daily basis presented with numerous risks which may not be standard in nature.
In many of these instances, the risk manager is likely to be hesitant to the risk because of the interest of the manager in reserving his job and income.
That is to say, as a risk manager, there are checks and balances in the organization that may control the risk taking activity of the manager and may thereby infringe on what a risk manager may ideally have done in a given risk synopsis.
The risk management business can be likened to a coin. One can never tell with certainty the outcome of an event until the actual occurrence manifests. Risk managers are in the business of managing risk of varying magnitude.
Despite these, they are still human with pure human tendencies of avoiding risk and therefore, there is the need to constantly show support and guarantee to their daily risk taking activities so that, they may be well motivated to provide their expertise to a market that is constantly under change and in need of prudent risk managers willing to face it head-on.
This will drive customer satisfaction higher, enhance economic agents with guarantees and further drive the insurance penetration agenda.
ABOUT THE WRITER
The writer is an Associate Member of the Chartered Insurance Institute, United Kingdom, a Chartered Insurer and holds a Master of Business Administration in Finance, Bachelor’s Degree in Economics from the University of Ghana, Legon
Email: [email protected]
Mobile No: +233(0)261776904