Risk management in Asia is changing. In the month in which PARIMA holds its inaugural annual conference, Mr Andrew McClure of AIG reflects on the value that risk managers can bring to their organisations. Increasingly seen as a critical driver of resilient, sustainable change in an organisation, Risk Managers have an opportunity like never before to contribute to the success of their businesses.
On the 8-9 December 2014, something exciting will happen – or, depending on when you read this article, would have happened. The inaugural PARIMA Annual Conference will take place in Singapore. Conceived and led by Asia’s leading risk managers, with events and speeches created for, and delivered by their peers, we at AIG, believe the PARIMA event represents an important development in the practice and application of risk management in Asia.
AIG’s support of PARIMA is reflected by a subtle reshaping of how we engage with risk managers and brokers across Asia Pacific. Perhaps the clearest way of demonstrating our new approach is to examine the evolution of two of our most recent market-facing events: “Construction Goes Global” and “What to do When the Regulator Comes Knocking”.
More listening, less talking
In January of this year, I was lucky enough to attend the AIG Construction Roadshow in Kuala Lumpur. It was a well-received event that drew together AIG’s local market leaders, our regional and global experts in construction, and the leading brokers in the market. However an important voice was missing in the conversation: that of the construction companies’ risk managers.
Fast forward to September, and you would have witnessed a very different situation. Run three times in a single week in three separate cities – Hong Kong, Singapore and London – the roadshow had one simple change. Risk managers shared the stage with us, and risk managers played visible and vocal in the audience.
Over the summer we took “What to do when the Regulator Comes Knocking”, a roadshow on good corporate governance, on tour across Asia, engaging with risk managers, lawyers, corporate officers and brokers from a wide array of industries.
As with our evolved Construction roadshow, we executed a single philosophy: create the opportunity for our clients to debate, then get out the way. In many ways, there is nothing new in our approach; to quote from Stephen Covery’s Seven Habits of Successful People, “first seek to understand, then be understood”. To our delight and honour, through 2014, we had the opportunity to learn a lot from the market.
One of the lessons that was most apparent to us was a powerful sense of confidence and leadership within the risk management community itself. This change in sentiment is not happening because of any roadshow a carrier or broker might deliver, nor even as a result of the PARIMA conference. Rather, the emergence and spread of strong risk management is coming from within the profession, creating the opportunity for PARIMA to thrive, and the chance for carriers like AIG to learn from the market.
An invitation to lead
During the course of 2013, we spent a lot of time with risk managers to understand their challenges and how we could help them succeed. During our conversations, one particular enabler for a more sophisticated form of risk management became apparent: heightened expectations from the Board.
Many Boards, whether in Asia or beyond, see risk management as a monitoring function or early warning system.
Essentially a tool for identifying, classifying and prioritising risks faced by the organisation, risk management may be seen almost as a passive function. Actions, whether tactical or transformative, urgent or measured, are implemented by others: accounting, sales, or operations.
These Boards do not diminish the value of risk management – far from it. Since the economic havoc emerging from the Global Financial Crisis, there are few companies who are not investing in risk management, audit or compliance functions. However the message from the market suggested that these companies may be missing a trick when compared to those where the Board expects more of their risk managers.
For an increasing number of companies, the risk management function is seen as one of the “hero” functions in the organisation, with the Chief Risk Officer a distinct role on a par with the CFO, COO or CIO. While falling some way short of empirical evidence, my own conversations in the last year, whether at events led by AIG or by others, highlights that many risk managers are being asked by their Boards to deliver something genuinely exciting: transformational change.
Everything changes, all the time
All organisations are beset by change. Changes in competition, regulation, market. Externally-triggered changes like mergers between competitors or shifts in economic conditions. Internally-driven changes like organisational reshuffles or new product launches. To use a cliché no less true for its familiarity, change is the only constant. Through this environment of change, many Boards are looking to their risk functions to help guide and lead them.
“The Risk Manager as Change Agent” may sound like a thesis from an Executive MBA, but across Asia it is becoming the reality for an increasing number companies and risk managers. From the conversations I have enjoyed across Asia this year, two factors need to be present for a risk manager to inhabit this role.
First, the risk manager needs to want to embrace the challenge, and to have the skills and capabilities to deliver. Many are already in this state, with the experience and knowledge to make a difference engrained. For others, training and professional development are required to match their hunger and passion. This is one of the reasons that AIG believes so strongly in supporting PARIMA’s mission. We believe a successful Association will lead to stronger, wiser, better risk managers. Risk managers who can deliver a change agenda.
Second, the Board has to be ready to embrace this new approach, and needs to empower their Risk Management function with true power and influence. The most powerful signal that a Board can deliver is to create the role of Chief Risk Officer, reporting to the CEO. My own conversations with risk managers and industry leaders across Asia this year have reinforced the point: making risk a Board-level function elevates it to a higher level. A hero function indeed.
AIG’s CEO, Peter Hancock, spoke on the subject in a keynote video speech we contributed to kick off the PARIMA conference. Once a Chief Risk Officer himself, reporting to the CEO of JP Morgan, Hancock’s speech to the delegates emphasised that risk truly is a Board issue.
For some Boards this is not self-evident, highlighting another reason for AIG’s foursquare stance behind PARIMA. The organisation will raise the profile of the function, lobbying governments, regulators and employers alike to recognise and exploit the value risk managers can bring.
The future of Risk Management in Asia
Risk management is not about banishment of all risk. Rather, it is about a mature, thoughtful, insight-led conversation about what risks exist, which can be minimised, avoided or embraced. Risk management allows for a more nuanced, robust understanding of a company’s environment and the opportunities and threats it faces. In short, good risk management – good risk managers – enable better decisions.
Risk management is about creating an environment of resilience and thoughtful decision making. The leading risk managers in Asia and beyond will combine the best of their “old role” or being an early warning system with the power of the new expectation of delivering and sustaining change. After a year of listening to risk managers across Asia, it is with this philosophy in mind that I am confident to say on behalf of AIG, and with a nod to PARIMA’s mission, “Bring on Tomorrow”.
Mr Andrew McClure is AIG’s Head of Strategic Marketing and Analytics for Asia Pacific, based in Singapore.
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