Risk Management Stewardship: Six Ideas on Closing the Books in 2022
Risk professionals’ contributions to their organizations’ success can often get overlooked amid the hustle and bustle of running the business day to day. Each year-end provides an opportunity to assess how risk management programs performed over the course of the year, communicate successes to senior leadership, and identify areas to improve in the coming year.
Savvy investors know that past results are no guarantee of future returns, but they are useful in offering guideposts for planning. As risk managers prepare to turn the page on their 2022 calendars, reviewing the past year in their organization can offer valuable lessons.
Six Year-End Practices to Enhance Risk Management
Before closing the books on 2022, risk professionals should consider six year-end practices that can enhance their risk management programs. These include:
1. Examine budget and ultimate spend for the year.
For organizations with calendar year ends, the fourth quarter is a time for reconciliation of the prior budget and finalizing a new one, which for many organizations occurs early in the final quarter of the year. Here are some important questions risk managers should ask:
How did the risk management department's actual spend compare with the budget?
Did any funds from 2022 go unused?
Did any unanticipated expenses emerge, and might those recur in the new year?
Understanding any gaps that arose can help risk professionals recalibrate their budgeting.
2. Analyze losses and claims.
Retained losses and larger-than-expected claims can erode risk management budgets, but they are also opportunities for implementing loss control and risk transfer strategies that better align with your organization's risk tolerance. Analyzing claims is important whenever policy periods are ending, but it’s a good practice to do periodically, especially with large-deductible, loss-sensitive programs that require collateral.
Here are questions to consider:
What was your loss experience, and how did it impact your organization's financial performance?
What trends can you tease out of the past year's claims and retained losses? For example, if losses in 2022 were concentrated in one or two lines of business, the risk management department might want to investigate why, and adjust its allocation to encourage loss prevention.
3. Review your insurance strategy.
As you review your insurance strategy, here are some important questions to ask:
Did your risk transfer program perform to your expectations? Why or why not?
Did your organization have any losses that insurance did not cover?
These are important questions to discuss with your broker or risk advisor, as the answers could prompt you to consider changing insurers or restructuring your insurance program.
One area to pay special attention to is changes in property values. Inflation in 2022 has increased replacement costs for property insurers, and if your organization doesn’t adjust its insurance limits to reflect higher valuations, you could wind up with coverage gaps. Book value may no longer be accurate due to current market dynamics. Insurers and brokers often have valuation tools to help, so you may want to compare their findings with your organization’s sense of property values and adjust as needed.
4. Nurture risk relationships.
On the subject of risk advisors, good stewardship in risk management entails reviewing your organization's risk relationships.
How did your broker/risk advisor and carrier(s) help you manage your total cost of risk? What could they have done better?
Stewardship meetings are especially useful when they align with the renewal of your contract with your broker. Year-end also could be a good time to reassess ways to nurture and improve those relationships – or look for new or additional risk partners.
5. Anticipate business changes.
While the above four practices are largely about looking back, the fifth is mostly about looking ahead – through the lens of what happened in the past year.
What will be different in 2023 for your organization's business and exposures?
What will be different for your associated risk management priorities and staff?
Some business changes may surface during the budgeting process for the coming year, though you might think of others, such as potential acquisitions or divestitures, or supply-chain shifts. Such changes, sooner or later, will need a risk manager's attention, so it's good to start thinking about them in advance.
6. Upgrade skills.
Risk professionals have a lot to keep track of, and because many businesses have changing needs, it’s a good idea to maintain and upgrade your skills – and those of your direct reports. Learning and professional development are one of the most important investments risk managers can make. Year-end can be a good time to budget and plan for conferences, professional designations, and other skill development programs in 2023.
If you and your team are planning to look for professional certifications and designations, here are some you should consider:
4 Certifications to Make You Stand Out in the World of Risk Management
3 More Certifications to Make You Stand Out in the World of Risk Management
Upgrading Your Risk Management Toolbox
As risk professionals prepare to close the books on another year, they might discover new ways to improve their department's operations and insurance purchasing. For example, is your department making the best use of what's available to understand and mitigate risk and optimize your insurance spend? If the answer to this question is anything but a confident "yes," consider exploring technology solutions to enhance your team's efficiency and effectiveness. Good risk managers plan for the worst and hope for the best, and all risk professionals deserve to enter a new year with confidence in their risk management toolbox.