Tag Archives: customer data

Insurers Must Finalize Digital Strategies

I’m a big believer in the power of good, evidence-based research; I’ve mentioned this often in my blog posts. So, I am pleased to start this new series discussing our recent Distribution and Agency Management Survey.

It’s the most extensive distribution survey in the insurance industry ever conducted by Accenture Research.  We canvassed top executives at 414 carriers in 20 countries in Europe, North America, Asia Pacific and Latin America. They ranged from marketing chiefs to CIOs, heads of distribution and sales, brokerage executives and chief digital officers—they were all involved in insurance distribution. Many of them, 44%, work in Europe. Nearly all the carriers we surveyed generate premium income of more than $1 billion a year. Forty-five percent were multiline insurers, 28% were property and casualty insurers, and 27% were life insurers.

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This is, indeed, a very powerful survey.

It gives a clear picture of how quickly insurers are deploying digital strategies in the sale and distribution of their products and services. Moreover, it highlights the actions carriers need to take to harness the full potential of digital technologies to transform their distribution model and avoid being left behind by competitors.

Digital technology is no longer an adjunct to the businesses of the world’s major insurers. It now dominates the agendas of most of the biggest carriers around the globe. And its influence is fast getting stronger.

We’ve entered an era of huge digital disruption. Carriers must move quickly to formalize their digital strategies and shape their future distribution models—one of the main findings of the Distribution and Agency Management Survey.

Reimagining insurance distribution - Distribution and Agent Management Survey Accenture POV

More than 80% of the insurance executives we surveyed intend to fully digitize their sales processes in the next few years. This is a huge shift from just two years ago, when only a minority of carriers had such plans. In Europe, 27% of insurers have already implemented end-to-end digital sales processes, and a further 30% plan to follow suit in the next three years. This is in line with trends from the rest of the world.

New highly personalized digital channels will enable insurers to build intimate customer relationships that can be leveraged by physical channels to sell further products and services. They’ll also offer new business opportunities. Nearly 60% of all the insurers we surveyed are prioritizing a shift to more customer-centric distribution models, while 48% have, or plan to have, a customer-centric hub that allows them to use customer data to improve the service experience. Raising the quality of the customer’s digital experience is a major priority among insurers in Europe and the rest of the world.

Carriers across the globe are preparing a host of new digital services and products. Competition will be fierce. In the midst of growing change and uncertainty, it’s vital insurers cultivate business agility and act decisively in selecting and implementing their digital strategies.

In my next blog post, I’ll examine, in more detail, the digital disruption that’s taking place in the distribution channels of major insurers around the world.

For more information about Accenture’s Distribution and Agency Management Survey, click here.

What GoogleCompare Shows on LeadGen

Steve Jobs was famous for saying; “A lot of times, people don’t know what they want until you show it to them.” He was most often referring to focus groups and “industry experts” as the last places he’d look for ideas on innovation and disruption.

I’ve often wondered what Jobs would have said if asked to reimagine insurance distribution in America. I think he might have obsessed about a customer-centric mindset, a fierce focus on trust and a single place for managing risk. Not what you typically see from those trying to disrupt LeadGen in insurance today.

Others Will Follow GoogleCompare Out

TheZebra.com, Insurify.com, QuoteWizard.com, GoogleCompare … the list appears to be endless these days – represent a group of “innovators” who didn’t think what the consumer might want from an insurance experience, and in turn are delivering a toxic insurance shopping experience clouded by opaque offers like providing an Expert Virtual Insurance Agent. What’s worse, many in the FinTech vertical – investors and media alike — are talking about these “innovations” without ever taking them for a test drive. Imagine the editor of Car & Driver simply publishing the latest hype for a new Ford Truck model as gospel without taking the vehicle for a spin.

So, why not take a spin. Ask for a quote from theZebra.com or QuoteWizard.com, AND give the company your actual email address and cell phone number. Then buckle up. Calls… emails… ad nauseam. And most of the outreach is not even from the LeadGen company you connected to. In fact, most of these LeadGen companies don’t actually sell insurance. They simply sell the customer and everything the customer has shared about themselves to others. How can that be?

Their Words – Not Ours

TheZebra.com home page promises the consumer “insurance in black and white.” Reminds me of Apple when it launched its iconic iPod with the simple phrase: “1,000 songs in your pocket.” Pretty snappy. But unlike Apple, which simply delivered on its promise, here’s what theZebra.com says it will actually do to the consumer and the personal information she provides. (As it happens, the privacy disclosure about buying insurance “in black and white” is in grey on the Zebra.com website. As my Dad would say, there are some things you just can’t make up. These are actual excepts from the company web site. The boldface is ours.

SHARING OF PERSONAL INFORMATION

The Zebra may rent, sell or share Personal Information or Location Based Information it collects about you to or with third parties. Personal Information and Location Based Information collected from you is commonly used to provide you with products and services and to comply with any requirements of law.

By submitting your e-mail address and/or phone number (as the case may be) via The Zebra or our properties, you authorize us to use that e-mail address and phone number to contact you periodically, via e-mail, SMS text message, and manually-dialed and/or auto-dialed telephone calls, concerning (i) your insurance-related or quote requests, (ii) any administrative issue regarding our services and/or (iii) information or offers that we feel may be of interest to you. We may also send e-mails to you periodically regarding updated quotes or offerings. You may opt out of receiving e-mails from us at any time by unsubscribing as set forth in the applicable e-mail. Additionally, by filling out information on The Zebra as part of your request for information about insurance policies and quotations, you authorize us to provide that information to various insurance companies, insurance agents and other related third parties that participate in our network. Some insurance companies or third parties may then provide your personal information to their insurance carriers, suppliers and other related vendors in order to generate price quotations and information relevant to insurance policies that you have requested. These third parties may use the contact information (including telephone number(s)) you have provided to contact you directly with quotations by means of telephone (manually or auto-dialed), fax, email and postal mail, even if you have registered your phone number(s) on local and/or national no-call lists. You further acknowledge and agree that each third-party that receives your quote request from this website or from our affiliates may confirm your information through the use of a consumer report, which may include among other things, your driving record and/or credit score. For purposes of faxing, it is understood that insurance companies or third parties have an established business relationship with each user of this website, if required to comply with the then current law.

We may also share certain personal information or location-based information with institutions providing possible product offerings to you based on the information you submit through the Website (e.g. financial institutions and/or insurance companies), and/or certain The Zebra vendors in order to allow them to use that information to obtain and provide us with additional information about you, and/or product offerings that might be of interest to you.

Decades of Trust Put at Risk in a Digital Instant

Iconic insurance brands, like AllState, Amica, Esurance and MetLife – are just a few of the insurance carriers featured inside these LeadGen sites. This isn’t complicated. As consumers, all of us are very wary of providing our personal information to anyone – always looking for assurances that the receiver of our personal information is someone we can trust. As insurance professionals, we will always require personal, non-public information to underwrite risk. It is critical as an industry that we preserve the public’s trust that we will respect their confidence and protect their data.

In my company, we do a lot of work with financial institutions, and even though they might complain about regulatory overreach, most bank CEOs are proud to state in BLACK AND WHITE: We will not share/sell your personal information with third parties. Look at the fight Apple and Google are prepared to wage to protect the personal data on someone’s cell phone – so focused about protecting the assumption of trusted privacy implicit in their brands.

When insurance carriers specifically, and our industry in general, support or, worse, encourage these LeadGen models, they put our brands, our hard-fought reputation of trust, and an emerging generation of customer-centric, omni-channel-licensed insurance advisers at risk. Insurance isn’t a commodity as long as underwriting is required, and regulators require massive balance sheets to stand at the ready to settle claims. Personal information, whether provided person to person or online, or via virtual driving analytics aggregation tools – it’s the customers’ data. And we as customers want to know who they are giving it to and how it’s being used.

If carriers don’t question this toxic experience called LeadGen, you can bet consumers and their advocacy groups will shortly assemble a collective voice to express their dissatisfaction to regulators – and the regulators will be quick to respond. I can hear Sen. Elizabeth Warren and the Consumer Finance Protection Bureau (CFPB) decrying the misrepresentations and mistreatment suffered by the consumer when they provide their personal information under the guise of a black-and-white shopping experience — only to learn their information has in fact been down-streamed to others again and again. Our entire industry will be painted with a very unflattering brush. Just as the outlandish behavior of certain mortgage origination companies drew harsh scrutiny for all lenders in the last decade, think of insurance commissioners and Congress taking aim at the “grey print” of these LeadGen models: the CFPB alleging potential unfair, deceptive or abusive acts and practices (UDAP) violations because of the problematic impact on the consumer.

Going Forward

For the carriers, the dilemma is real. Traditional brick and mortar local agencies as distribution platforms are going away. They have no large, scalable, addressable markets that can be engaged digitally. GEICO is relentlessly accumulating market share by going direct to consumers. It’s almost understandable that, given those constraints, some of America’s most powerful insurance brands are putting their brand equity at risk on these LeadGen platforms in an effort to remain visible, reaching for any option to remain viable.

An alternative solution is emerging. Insurance cCarriers and our industry must focus on imagining a new type of licensed agent with the tools that will let them provide a transformative insurance shopping experience for insureds – a lifetime of simple, comfortable, obsessively trustworthy insurance purchases and service. And we, as agents, from the Big I on down, have to imagine a new generation of insurance advisers and insurance agencies. Think of them as meta agents operating in meta agencies.

Can we imagine a new generation of agent that can instantly access all of the public and non-public information about a customer’s character and collateral, deliver it to a stable of insurance carriers that are prepared to underwrite that risk, in exactly the format they need it in, get instant quotes from the carriers that reflect the customer’s risk tolerance and assets to be insured, be available to provide any of the advisory insights the customer might want – all exactly at the moment the customer has an insurance need? A new generation of agents, operating in a new generation meta-agency — fulfilled in their work as risk managers and customer advocates, operating in a seamless, frictionless ecosystem in lifelong service to the customer. And all with an obsessive commitment to trust.

Can you hear Steve Jobs in his iconic black turtleneck on stage wondering the same out loud?

A New-Generation Agent and Agency

A new generation of agent and agency is emerging – empowered and excited to deliver insurance solutions to consumers, operating inside companies that have long and deep trusted brand equity with the consumer, an obsessive commitment to trust. And, having earned that trust, these agents have access to everything a carrier needs to know about the consumer’s character and collateral, eliminating the dreaded “insurance interview and application” or, worse, “the LeadGen hustle.”

This new agent never prospects, sells or steers a customer – the agent simply focuses on delivering a frictionless shopping, comparing, buying and post-purchase service experience tailored to each unique customer exactly at the instant the customer needs it — again, with an obsession for trust. We believe the role of an agent, with a completely reimagined operating environment, is more important and more valuable than ever before.

A new generation of agents and agency is emerging – reimagined to reflect what the customer actually wants, even though, in the iconic words of Steve Jobs, “They didn’t know it.”

Capturing Hearts and Minds (Part 2)

This article is an excerpt from a white paper, “Capturing Hearts, Minds and Market Share: How Connected Insurers Are Improving Customer Retention.” To download it, click here.

Part 1 of this series explained why retention is so much harder these days. This article explains how insurers can solve the problem.

Know Your Customers

Understand values and behaviors of your customers. Start with available data sources. Augment structured data from traditional back-end systems with unstructured data like those collected through call centers and written correspondence. With these data, you can deduce meaningful patterns and behavior-based customer segments.

Enter into active dialogues to establish meaningful relationships. Use social media analytics and conversations via social networks to increase customer touch points. Use the knowledge gained about their wants and needs to sustain intermittent conversation about things that are helpful to the customer.

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Build an environment where sharing data creates mutual benefits for customer and insurer. Transparency is key. Create and publicize a “customer data policy” that specifies how and when you will use data shared directly or generated through means such as “big data gathering,” and how customers will benefit. Use shared data to create extra customer value, as detailed in the next section.

Offer customer value

It is no surprise that customer value – that is, the value that a customer derives from the relationship with his or her insurer – drives customer loyalty. In a previous study, we defined customer value as the adequate response to customers’ changing needs. How can insurers translate this to understand which value drivers influence retention?

The fairness zone: The first component of customer value we will discuss is – again – price. For most of our respondents, the absolute level of premiums mattered less than individual perception of price fairness – a too-low price has the same negative effect on loyalty as one that is too high (see Figure 5). This means that a customer to whom the price seems right is two to three times less likely to switch in a given year. The fairness of premiums is also an emotional component that insurers need to get right (and tools like social media analytics can support this).

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What is the power of brand? The second value factor we examine is brand. What is the retention value of a good brand? According to our data, it’s less than expected. Only 21% of our respondents name “reputation” as one of the factors that cause them to stay with their chosen insurers. Could brand still be an implicit value driver?

Our recent consumer products industry study, “Brand enthusiasm: More than loyalty,” showed that brand consciousness and brand loyalty are changing, and our data echoes those findings. Only 12% of respondents have a high brand consciousness, and that is the only bracket where it has a strong effect on loyalty in the insurance world (see Figure 6).

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This suggests that an extra investment in brand creates limited loyalty returns; a great brand only matters if your customers belong to the few who are brand conscious to begin with. Moving customers to the “high” consciousness bracket might prove difficult to achieve.

So how can insurers, many of whom already have a strong brand, make this work to their advantage? We propose adopting the concept of “brand enthusiasm.” Brand enthusiasm is influenced by the level of customer engagement, which we will explore in the next section, and again leads to the increased emotional involvement with the insurer that we call “heart share.”

Transparency, not complexity

Last but not least, we examined other product-related value drivers. We suspected that the often high complexity of insurance products has a negative effect on loyalty, but our data proved this hypothesis wrong. Although product complexity might be a deterrent to purchase (which was outside the scope of the survey), even those who perceived the product they bought to be highly complex did not show a higher propensity to switch.

In contrast, transparency about the product strongly influences loyalty in a positive way. Transparency leads the customer to understand and be more comfortable with the product (and the insurer) even when it is complex. Seventy percent of respondents who reported that their product understanding was high expressed high loyalty – almost three times as many as those with low product understanding. High transparency leads to rational involvement: the “mind share” in our study title.

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What current technology can help insurers promote customer value? To give customers an emotional connection and involvement with a fair price and a transparent product, telematics is ideal. Regarding fairness, customers can see that the rate is based on their personal risk and influenced by their personal actions. Examples include a “pay-how-you drive” auto product or the use of exercise tracking devices in health insurance. Transparency of this sort of auto product is high, and for many telematics offerings, there is an additional fun factor by seeing how well you drove, thus competing against yourself for better driving scores.

Recommendations: Offer value

Support your customers in areas they personally value, even if they are not directly related to your core business. Offer information to your customers in useful areas that are widely related to their coverage: for example, traffic or weather information for auto insurers. Create communities of interest – in social networks or directly hosted by you – to share news, tips and enhance exchange among like-minded individuals and your organization.

Add risk mitigation or prevention into your products and services. Commercial insurers have been doing this for years. Start offering these at the outset of the contract relationship. Later, add tracking via telematics, plus assistance services.

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Personalize offerings and provide pick-and-choose product options. Product flexibility starts in the back end. Your application architecture must enable a modular approach to products and services. Build a roadmap for flexibility using industry standards such as IAA. From the front end, add in-depth analytics to flexibly balance the offered options with market needs.

Fully engage your customers across access points

Incumbents at risk

One characteristic of the Millennial customer is the desire for omni-channel shopping for their goods and services. For insurance shoppers, this extends well beyond using traditional insurers – many Millennials are open to using adjacent providers and new entrants into the market (see Figure 7).

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In the short run, offerings like Google Compare mainly replace existing aggregators; insurers still cover the actual risk. In the long run, online service providers – given their good customer knowledge across many products and services – could start to accept risk themselves. In this case, customers’ already-stated willingness to switch would become a real threat to incumbents.

In addition, the reason respondents gave for considering those providers should be troubling to insurers: They describe non-traditional providers as faster, more transparent and easier to reach (see Figure 8). To counter this, carriers need to engage with their customers across a broader range of access points than ever before.

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The age of mobility

One option is to be more accessible on the go. Ninety-six percent of our respondents own some form of mobile device, most often smartphones (owned by 82 percent of respondents) and tablets (owned by 49 percent); they have become commonplace modern accessories throughout the world. Still, only 13 percent of respondents who bought their insurance online, either directly or via an aggregator, used their mobile devices to buy. On the other hand, 29 percent of all respondents stated they would like their insurers to offer an option to buy through a mobile device, and that this would increase their loyalty.

Expanding mobile offerings outside of searching and buying is an instant accessibility increase with potential loyalty gains. The biggest effects would be in submitting claims (42 percent) and in simple communication (43 percent). Many insurers have already invested in apps for claim submission, but again, they seem to be either unknown or too hard to use.

The effect of expanded mobile offerings differs widely by country, with the more empowered customers in developing markets increasing their loyalty more (see Figure 9). Still, given the larger market sizes in mature markets, investment in mobile services are still expected to generate returns.

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Connecting everything, everywhere

Looking toward the longer term, insurers will also need to consider investing in the Internet of Things (IoT) to enhance customer engagement. A growing number of consumers either own or can imagine owning an Internet-connected device like a refrigerator or a washing machine (56 percent of millennials, 36 percent of boomers).

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Currently, only a small percentage of customers told us they would be comfortable with insurers using the data from these devices (21 percent of millennials, 15 percent of boomers.) Still, for those respondents, the greater accessibility and convenience of the IoT would lead to an increase in loyalty. Insurers can make use of the IoT if they sell it right: with high transparency regarding how the data is used (and not used).

Recommendations: Fully engage

Embrace mobile to enable constant access for your customers. For your main set of lines of business, envision “customer journey maps.” These maps document the typical steps a customer must take during the provider relationship, from needs discovery through information gathering and purchase, all the way through after-sales services and claims processes. For each step, identify interaction options to generate a complete picture of potential mobile touch points.

Support decision making throughout each step of the sales process at the convenience of your customers. Create one unified front end for the customer, whether they come in through an agent, call center, the Internet or mobile devices. Make customer data and product information equally available at all touch points.

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Have information available anytime, anywhere to support instantaneous fulfillment of client requests. Equip tied agents, underwriters, claims adjusters and other fulfillment roles with mobile technology like tablets and other handheld devices. This allows you to abandon a fixed workplace in favor of greater fulfillment flexibility – for example, claims can be adjusted directly on-site.

Ready or not – are you capturing the hearts and minds of your customers?

How are you using your in-house sources of customer knowledge? In what ways are you gathering and adding external information, such as that from social networks? How are you combining internal and external information? How is it used to generate greater customer value and loyalty?

Where and how are you using needs-based or persona-based segmentation approaches? How will you deepen your level of understanding individual customers?

To what degree can your customers pick and choose options from your product portfolio? What is your plan to remove the barriers to further customization?

How do you communicate with your customers? What is your approach to staying abreast of the ways they prefer to communicate, now and in the future?

In what ways are you engaging millennials? And how will you stay updated to address the customers of the future, such as Generation Z and beyond?

This article is an excerpt from a white paper, “Capturing Hearts, Minds and Market Share: How Connected Insurers Are Improving Customer Retention.” To download it, click here.

New Channels, New Data for Innovation

Distribution channels may be the most tangible part of most consumers’ experiences with insurance. While the details of the product are obviously important, once the policy is purchased, most people file it away and forget about it. Many consumers couldn’t find their policies if you asked them. And how many consumers do you think have actually read their policy?

In today’s digital world, an insurer’s success depends more on how customers interact with insurance than on the product itself. Increasingly, consumers’ expectations are being set by the Amazons, Apples and Googles of the world than by similar insurers. Insurance has the unfortunate distinction of dealing in a product that most consumers only own because they have to, not because they want to. So, insurers start perceptively behind on the product side compared with Apple, Google and Amazon. People use/shop/buy from these places because they LOVE to, not because they must. The experiences that insurers deliver through their channels are no match for digital retail giants. At least, not yet.

What can insurers do?

As insurers, we can copy pages from the Google playbook and get better at using data and analytics to improve our distribution channels – the experiences we deliver and their effectiveness. Majesco’s recent research report, A Path to Insurance Distribution Leadership: New Channels and New Data for Innovative Outcomes, provides some insights, drawing on the first-hand experiences of CIOs who shared their thoughts at a roundtable discussion this past June.

On the consumer side…

Insurers can use data and analytics to segment customers and develop the right products for their needs and, crucially, offer these products through the channels that best meet the preferences and needs of each segment. Predictive models can be used to further the precision with which to target prospects and customers for new purchases, cross-selling or increasing the stickiness of relationships. By tracking customers’ paths across channels and collecting the data they’ve provided and consumed, insurers can ensure that consumers have a seamless, connected experience, no matter what path they take.

On the insurer side…

Insurers have a wealth of data! They just need to use it like Google! Insurers have details on sales, retention, costs and profitability that they can track down to the channel and individual producer level. While most companies have always used this data to track performance, they can go even further and get additional insights on their producers by applying the same techniques we just discussed for customer data – namely segmentation and predictive modeling. Segmentation allows insurers to more efficiently apply training/development resources and match producers to markets/customer segments that best fit their potential. Predictive models can be used throughout the producer lifecycle to forecast performance and future success of individual producers as well as to anticipate future commission and incentive costs. Analytics can also be used to steer prospects and customers to the sales and service channels that optimize business outcomes like new business, retention or lifetime value.

While the benefits of using data and analytics in insurance distribution are obvious and compelling, it is easier said than done. There are at least three components that must be solidly in place for any effort to have a chance to succeed. Companies should first identify their top priorities and opportunity areas and use these to define an overall data and analytics strategy. After the strategy is secured, the focus can turn to the acquisition of internal and external data that will be needed to fuel the analytics and modeling identified in the strategy. A distribution management system can be a key enabler here, by providing rich, granular data on channel and producer performance. At the same time, a sound data governance strategy must be put in place to ensure the quality, integrity and comprehensiveness of the data.

A final important consideration is how the analytics will be operationalized. Again, a distribution management system can play a key role here by being configured to gather and track the needed data and execute business rules created through analytics and models built by using the data.

The insurance industry may currently lag behind the Apples, Googles and Amazons of the world in both product engagement and distribution experience and effectiveness. Insurance, however, has an enviable amount of data, talent and technology at its disposal. Leading companies in our industry are leveraging these assets and may very likely be the next ones pointed to with admiration by consumers and other industries for their excellence in distribution.

3 Criticisms of ERM: Justified?

A large retailer gets hacked, and customer data is taken, which costs millions in expense and lost revenues. A product recall is perceived to be badly handled, which tarnishes a manufacturer’s reputation and seriously erodes revenue, as well as margins. An acquisition fails to produce the expected profit lift and hurts a technology company’s share price. These organizations have implemented ERM, and, clearly, ERM has failed. Or has it?

Let’s look at three criticisms of ERM:

ERM Cannot Identify and Protect Against All Significant Uncertainties

This criticism is fair in the most literal sense only. Even a very robust and well-administered ERM process cannot find every major risk that an organization is subject to, nor can it protect against all risks, whether identified or not. However, without ERM, the ability to identify a majority of significant uncertainties facing an organization is greatly diminished. Not only that, without an ERM approach to risk, the mitigation of known risks is more likely to be addressed silo by silo even when an enterprise-wide solution is necessary.

In addition, with ERM, organizations are generally better prepared to rebound from unexpected, unidentified risks that do hit them. For example, ERM organizations typically have very robust business continuity and business recovery plans, have done tabletop exercises or drills that simulate a crisis and have maintained a lessons-learned and special expertise file that can be called upon, as needed.

According to a post by Carrier Management, citing RIMS, “A whopping 77% of risk management professionals credit enterprise risk management with helping them spot cyber risks at their companies.”

These survey results do not suggest that chief risk officers or risk managers, who are responsible for the ERM process, are cyber experts or that all cyber risks can be specifically ascertained. Rather, the survey suggests that ERM better positions a company to discover cyber risks, just as it does with other categories of risk.

If ERM can reduce business uncertainties and surprises by identifying risks and managing them better than other forms of risk management, despite not being able to do so 100% of the time, it has not failed. In fact, it has most probably added great value. Consider a CEO who can avoid even one unnecessary sinking feeling when realizing that a risk that should have been spotted and dealt with has hit the company. How much is it worth to that CEO to prevent that feeling?

ERM Focuses on the Negative Rather Than the Positive

This criticism is not fair in any sense. It requires an upside-down view of ERM. Think about it. In almost any definition of ERM, there is some sort of statement as to the purpose or mission of ERM. The purpose is to better ensure that the organization achieves its strategy and objectives. What could be more positive?

By dealing with risks that challenge the ability of the organization to meet its targets, ERM is fulfilling an affirmative and important task. That most risks pose a threat is not disputed. But by removing, avoiding, transferring or lessening threats, organizations have a better chance of succeeding.

This is not the only positive result that can emanate from ERM’s handling of risk. Often, a thorough examination of a risk will result in opportunities being uncovered. The opportunity could take the form of innovating a product or entering a new market or creating a more efficient workflow.

Consider a manufacturer that builds a more ergonomic chair because it has identified a heightened risk of lawsuits arising from some new medical diagnoses of injuries caused by a certain seat design. Or, consider an amusement park that is plagued by its patrons throwing ticket stubs and paper maps on the ground, thereby creating a hazard when wet or covering dangerous holes or obstacles. Imagine that the company decides to reduce the risk by increasing debris pick-up and offering rewards to patrons for turning in paper to central depositories, then turns it into “clean” confetti sold to a party goods manufacturers.

These are hypothetical examples, but real-life examples do exist. Some are quite similar to these. Many risk managers, unfortunately, are reticent to share their success stories in turning risk into a reward. For that matter, many are reluctant to share their successes of any kind. One could speculate why this is so. It may be as simple as not wanting to tempt the gods of chance.

ERM Is Too Expensive

Those who criticize ERM for being too expensive to implement may lack information or perspective. Consider the following questions:

  • Has ERM been in place long enough to produce results?
  • Has the organization started to measure the value of ERM (there are ways to measure it)?
  • Can an organization place a dollar value on avoiding a strategic risk or a loss that does not happen; does it need to?
  • Has the number of surprises diminished?
  • Are there successes along with failures?
  • How much is it worth to enhance the company’s reputation because it is seen as a responsible, less volatile company because of ERM?
  • How efficiently has the ERM process been implemented?
  • Is too much time being spent on selling the concept rather than implementing the concept?
  • Has the process and reporting of ERM results been kept clear and simple?

To answer the criticism of a too expensive process, the following are things that a company can do to make sure the process is cost-effective:

  • Embed the process, as far as feasible, into existing business processes, e.g. review strategic risk during strategic planning, hold ERM committee meetings as part of or right after other routine management meetings, monitor ERM progress during normal performance management reviews, etc.
  • Assign liaisons to ERM in the various business units and functional departments who have other roles that complement risk management.
  • Do not try to boil the ocean; keep the ERM process focused on the most significant risks the company faces.
  • Measure the value that ERM brings, such as reduction in suits or lower total cost of risk or whatever measures are decided upon by management.

In the author’s purview of ERM in various organizations, the function tends to be kept very lean (without diminution of its efficacy). If the above suggestions are adopted, along with other economical actions, the costs associated with the process can be kept in balance with the value or well below the value.

Conclusion

It is possible for an ERM process to be poorly executed, and thus deserve criticism. It is also possible for an ERM process to be well-executed and deserve nothing more than continuous improvement.

The caution is that no one should expect perfection or suppose that one unanticipated risk that creates a loss denotes a total failure of this enterprise-wide process. Organizations are sometimes faced with situations that are beyond a reasonable expectation of being known or managed.

It would be fair to lodge criticism of ERM under certain circumstances; for example, if an organization’s ERM process did not reveal a risk that all its competitors recognized as a risk and addressed. But even in that case, perhaps there were reasons to think the risk would not penetrate protections the organization already had in place. Suffice it to say, every process and situation must be evaluated on its own merits and within the proper context.