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Looking Through the Business Lens at Risk

Have you been to an eye care professional for an eye exam? They use various instruments, shine bright lights at your eyes and have you look through a bunch of different lenses – all to evaluate aspects of your vision. An eye exam helps detect eye problems at their earliest stage — when they're most treatable. At the end of the exam, if eye correction is needed, you’re prescribed lenses to make your vision better. Risk management isn’t much different. As risk managers, we look at risks through many different lenses, but properly treating the most important risks depends on looking at them through the lens of the business.

Have you ever talked to the CFO to understand their perspective on what’s important to the strategic objectives of the company, and what success metrics indicate the business is healthy or not? Key metrics could include customer acquisition, satisfaction, or attrition, earnings, gross or net profit, growth indicators, and more. Managing risk is critical to any company, but it must be done through the right lens - with the end goal of what’s important to the strategic objectives of the company and measured by the success metrics that indicate the business is healthy or not.

Let’s take the example of a commercial property insurance carrier - FM Global. One of their most important strategic objectives is whether the company’s underlying insurance book of business is generating a profit. The market for commercial property insurance can turn on an insurer quickly. Natural disasters and other events (risks) can cause claims to soar. Other risks could also impact the business, such as cost of capital, impacts from a declining workforce and others. Regardless of the risk, in this example, the lens to view them through is impact to profit. “Our only ability to grow our capital is through our underwriting results…and our capital is what allows us to provide the large, stable underwriting capacity that our policyholders have come to expect,” explains their CFO, Kevin Ingram.

There are many objectives for managing risks and impacts to the business. Understanding the strategic objectives of the company and how they’re measured and evaluated is integral to being a better risk manager.

For more information on how to better manage risk using risk intelligence, visit Business Risk Quantification - Archer Insight.


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