RMG215 Why am I here? Quantifying the Value of a Risk Professional Risk & Insurance Management Society Annual Conference April 17, 2012 1
Housekeeping items Silence cellphones! Note exits Be sure to complete the evaluation form Sessions may be either audio or video taped, therefore. Please ask questions with the microphone provided Press may be here too Session materials can be found on the RIMS website and printed at the on-site printing stations 2
Roberta Martoza JP Morgan Chase, Inc. (212) 622-5104 Roberta.l.martoza@chase.com Your Panelists Michael Tannenbaum Key Strategies, LLC (973) 650-6383 mtannenbaum@keystrategies.com Edward Koral Deloitte Consulting LLP (212) 618-4464 ekoral@deloitte.com 3 3
What is Risk Management s mission? (i.e., how do we define success?) Create a framework by which the firm decides, systematically and intelligently, how to cope with fortuitous risks by assuming, transferring, or eliminating/reducing them Promote safety and loss prevention Promote awareness and intelligence about risk, especially insurance risk Minimize loss events and their cost Control premium and administrative costs Maintain appropriately broad insurance coverage 4 4
What are Risk Management s KPIs? (i.e., what are the earmarks of success?) Growth/shrinkage of premiums Growth/shrinkage of professional service fees Claims frequency Lost-time injury rate Average dollar value per claim Incurred losses as a % of payroll (or sales, or vehicle units, or miles driven) Proportion of insurable losses actually recovered from insurers Compliance rate (or frequency of lapses in compliance) 5 5
Push a button, hear a sound 6 6
What buttons do organizations push? (i.e., how can we create success?) Loss prevention/safety programs Risk management education and training Aggressive, effective claims management Aggressive, effective negotiation with: Underwriters Brokers Outsourced expertise providers Contractual/transactional risk management Hiring smart people (psssst!! That s YOU!) 7 7
But isn t it more complicated? 8 8
Which parts of the pie are manageable? 9
Where s the leakage? Keys Aggressive, effective negotiation with insurers, brokers, outsourced providers Sounds Growth/shrinkage of premiums, fees Proportion of insurable losses actually recovered from insurers Loss prevention/safety programs Contractual/transactional risk management Aggressive, effective claims management Claims frequency Lost-time injury rate Average dollar value per claim Incurred losses as a % of payroll (or sales, or vehicle units, or miles driven) Risk management education and training Compliance rate (or frequency of lapses in compliance) 10 10
What happened in that black box? Bad luck Market conditions Poor senior management support (enforcement, funding) Your closest competitor just had a whopper of a loss Courts creatively invented new constitutional rights Your expense budget got cut Good luck Market conditions Your organization really got with the program Risk management awareness has permeated the corporate culture Nothing succeeds like success 11 11
Is virtue its own reward? Doin the right thing Loss prevention Payoff? It couldn t hurt Aggressive negotiation Operational risk management Risk management ambassadorship Potential Investments Predictive modeling projects Additional professionals Educational programs But is that enough, and what other tools quantitative AND qualitative -- can measure the value add? 12 12
Roberta Martoza JP Morgan Chase, Inc. (212) 622-5104 Roberta.l.martoza@chase.com 13
JP Morgan Chase (JPMC) Fiscal Year 2011: Net Income of $19 Billion Approximately 260,000 Employees Worldwide $2.3 Trillion in Assets Lease and/or Own 85.5 Million Square Feet around the globe Leader in: Wholesale Businesses Investment Banking Treasury & Security Services Asset Management Consumer Businesses Retail & Financial Services Card & Auto Services 14
JPMC s Insurance Risk Function 28 Employees located in New York, Chicago and the United Kingdom Responsible for the placement of commercial insurance around the globe Handle all claims associated with those programs, including workers compensation and general liability Utilize captive insurers to fund risk Support lines of business Report to the Corporate Treasurer 15
JPMC s Risks From JPMC s 2/2012 10K filing: Regulatory Risk Market Risk Credit Risk Liquidity Risk Legal Risk Business & Operational Risks There are many Risk Managers 16
My Experience Worked at organizations where there were existing risk management departments in addition to some where I was the first risk manager I ve been involved in quantifying the RM function s value through various initiatives: Cost of Risk Malcolm Baldrige Quality Award Six Sigma ERM KPI s Cascading Goals & Objectives I m still not satisfied that any of these initiatives really demonstrated the true value that our positions provide our organizations! 17
Traditional Goals/KPI s Often associated with performance improvement initiatives Quantitative measurements are often focused upon items that our function may not have overall control of (i.e.: Cost of Risk) Once a measure is created, it may be difficult to modify based upon the changing needs of your organization May focus upon processes vs. the value that these processes provide the organization 18
How does your function add value? Do you place the firm s insurance? Claims? Do you transfer risk? Are you responsible for loss control? Do you identify risks and develop way to transfer/mitigate these? Are you responsible for developing business resiliency plans? First step is to list your areas of responsibility and map these to your firm s overall strategic initiatives. 19
How does your function add value? Once you ve identified how your value proposition aligns with the firm s strategic initiatives, how do you get the word out about what you do? Get out and visit with key areas of your organization. Be prepared to collaborate Ask questions if you don t know something ask Become educated Demonstrate how the risk management process can improve results Connect people For example: While visiting manufacturing, you discover that they are having a difficult time with Theft. You team with security and other resources to develop improvements for reducing this risk. 20
Communication Validate your goals/objectives with those of your manager Your focus should be upon what matters most to the firm Everything Risk Management does has a positive outcome, ensure that you can measure these and communicate the positive impact your efforts are having If you do not meet regularly with your management, find ways to make it happen. 21
How do you know if it s working? Are you asked to participate on projects? Do your business teams seek you out to help them solve problems? Are you asked to participate on teams that deal with risk issues? 22
Michael Tannenbaum Key Strategies, LLC (973) 650-6383 mtannenbaum@keystrategies.com 23 23
How do you justify investing in people? What s your department business plan? How do the people impact your department s performance? Is your department providing all it could and what could you do better? 24 24
What s Your Value Proposition How strong is your department s brand? Is Risk Management understood and embraced? Do you have a communication strategy? Are you able to identify the bottom-line impact of what you do? 25
Defining Success When do you get the call? Are you meeting with the C-suite regularly? Who supports you when you need a decision? Does your vision line up with management s? Is Risk Management integrated into the strategy of the organization? 26
Value Drivers Define the essence of Risk Management ID obstacles and how to overcome Internal training sessions Relevant examples Know Your Audience 27
Staffing Levels Optimum vs. Barely Adequate How do you justify head count? Do you have a staffing plan? Timing is everything What s your pitch? How Branding comes into play 28
Benchmarking Track all questions, issues and calls you handle Claims, loss and cost of risk comparisons Head count levels: size of the organization Level of satisfaction, Yours and theirs Strategic vs. day to day 29
Career Implications Strong Brand = Promotion Opportunities Perceived level of impact has direct affect Communication vs. technical skills Business mentality Strategic vs. transactional 30
QUESTIONS? As part of RIMS green initiatives, there are no printed handouts. Visit www.rims.org/2012handouts to download available handouts. 31