Lloyd’s Urges Business Leaders to Treat Risk Management Separately from Compliance

October 25, 2004

Lloyd’s Head of Risk Management, Steve Manning, told the market that businesses who consider risk management little more than a “box-ticking exercise” do so at their peril.

Speaking at Lloyd’s second Risk and Reward Conference, Manning unveiled the results of a recent risk management survey of the world’s leading specialist insurance market. He stressed that the key benefit of effective risk management was an improved bottom line, and urged businesses not to confine risk management to the “compliance silo.”

The survey showed that, while 78 per cent of Lloyd’s managing agents felt that the business benefit of good risk management was the most important driver for implementing it, half of them still saw compliance as the best means of carrying it out. Manning said the market had achieved a lot in the field of risk management, but he urged businesses to do more to fully embed it into their work.

Lloyd’s second Risk and Reward conference took place at the Merchant Taylor’s Hall, Threadneedle Street on October 21, 2004. It marks a major effort, which Lloyd’s has pursued over the last 18 months to develop “a risk management framework and a common risk language for the use of the franchise.” The bulletin said it “has raised awareness of risk and of the need for managing agents to build a risk management capability. In total, almost 2,500 people have attended risk management functions in the last nine months alone.”

Manning told more than 100 market participants: “We are developing an outstanding risk management capability, and as a market, we have made considerable progress. However, we cannot afford to take our foot off the accelerator, as many of our competitors are beginning to wake up to the benefits of an enterprise-wide approach to risk management.”

He noted that “only six market companies have embarked on risk management as a result of the FSA telling them to, but we are still a market that tends to be driven by compliance. If you see risk management as being a tick box exercise, you will not derive the true business benefit that risk management can offer. Do not put risk management in the compliance silo.”

Manning pointed out that in “many businesses, compliance officers are responsible for risk management.” He asked his listeners to “think about whether your compliance officer, who is already extremely busy, is the appropriate resource to have responsibility for risk management in your organisation on a day to day basis.”

He stressed that good risk management was not just about fires, floods and earthquakes, but involved looking at daily business practices too. “In today’s world, risks don’t always neatly fit into categories. When you ask almost anyone to describe the sort of crisis they worry about, many still talk of the ‘traditional’ risks – fire, flood, earthquake, windstorm. In practice, this is not the case. In the US, less than four per cent of the recent corporate crises have been caused by natural catastrophes,” he continued.

Manning noted the “progress made by Lloyd’s over the past 12 months,” which he said has “put us in the leading pack, and we know that a number of the initiatives that we have driven are now being adopted by our peers, such as the Realistic Disaster Scenarios.” He also said that a “number of agents have recently appointed Chief Risk Officers, and we believe that this will become an increasingly common position within the next 12 months.”

Other highlights of the survey include:
— the market has made excellent progress on risk management, with 93 per cent of per cent of managing agents carrying out a detailed risk assessment – up from 63 per cent last year; and — more than 90 per cent of agents believe that they have identified and assessed the key risks that their businesses face.

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