Interview: Roger Dix on enterprise risk management
What is enterprise risk management?
Enterprise risk management involves using risk as a core building block on which you build and manage your company. It is about assessing your risks, the capital requirement in certain scenarios and putting in place processes to deal with these risks. It is really what insurance companies are all about – insurance is taking on risk and managing it.
Why are actuaries suited to enterprise risk management?
Actuaries are well placed to be leaders in risk management. Our core training and the way we think of the world are consistent with the needs of risk management. Actuaries have a structured way of thinking. However, risk management also requires softer skills so that quantitative data can be communicated. Risk managers need the hard facts to justify their opinions, but they also need to be able to interpret the data and communicate the knowledge we have at a variety of different levels. These softer skills are also essential in creating scenarios, as well as providing the formulas. We are getting better at the softer skills. The profession is taking it very seriously as it understands that we don’t operate in a vacuum. Crucially, risk managers act as facilitators, rather than just telling managers an answer.
How have companies tackled risk management to date?
The problem generally is that people don’t do anything until they have a real reason, and that is evident in companies not putting in place proper risk management processes until a disaster happens. That is poor risk management because people need to consider risk when things are benign – mend the roof when the sun is shining, not when the monsoon is overhead!
Is that what happened in the credit crunch?
To a degree. Everyone is thinking about what to do now, when the credit crunch has happened. The infrastructure needed to be in place beforehand. Those companies who performed better in the credit crunch had a wider range of risk management activities in place than those that did not. You can see that no matter how much you plan, the worst could still happen, but that doesn’t mean that you shouldn’t plan.
What lessons have been learnt from the credit crunch?
Have good risk processes in place, including models and scenarios, to enable and facilitate managers to make better decisions in the future. In an ideal world, all future risk types are at least known to management, even if the scale of the risk is different to that expected.
What do risk managers do on a day-to-day basis?
They don’t tell managers what to do, but they are enablers and facilitators. They provide managers with information and make them aware of the risks, and how to manage those risks. They can also provide oversight on how a company is managing its risks, in a larger group context.
How can actuaries move into the area of risk management?
I think, as in any career, it is best to gain the general skills and then reach the level of specialisation when they have been mastered. Actuaries can work on the quantitative side of risk management, but to reach the top, they also have to develop their communication and interpretation skills. If they become an expert in the quantitative side, they can become risk management experts later. Actuaries should be aware of the potential of risk management and make a rational choice about whether it would suit them.
Why is risk management an appealing career path?
It can be very exciting – there is not textbook, t-shirt or film that can tell you a unified theory. Actuaries can be involved with creating new structures of risk management at an early stage in its evolution.
Your title is not CRO (chief risk officer)?
My title is head of group insurance and investment risk, although that is similar, but not identical, to a chief insurance risk officer. Different organisations have different structures and titles, even though many do the same things.
Do you recruit many actuaries? What do you look for when recruiting?
A majority of my team is actuaries, as a key job requirement is technical skills in the insurance space, which actuaries are well placed to provide. Another key skill for the role is an ability to communicate, not just with other actuaries, but with all levels within an organisation.
How can actuaries get involved in risk management?
They can become members of the risk management interest group or attend networking events, which will also contribute to their CPD. The beauty of networking events for risk management is that you get actuaries from all areas who are interested in risk. It’s not just pensions or insurance actuaries, but actuaries from across the board.
Could risk managers have reduced problems resulting from the opening of Terminal 5?
Hindsight is always something that makes things seem clearer, but I think that if an adequate risk management process had been in place, there would have been various clues that things would not go according to plan. If an ingrained and embedded risk culture had have been in place, staff members would have been able to flag their concerns, established scenarios and put in place processes to cope with potential problems. With an appropriate risk process, one would have hoped that Terminal 5 would have opened successfully. Having said that, the nature of risk is that the worst can still happen. It’s about being prepared for that eventuality.
Will the role of actuaries as risk managers increase with Solvency II and Basel II?
Actuaries have a strong role to play in creating quantitative models when Solvency II and Basel II are implemented. They will also have a strong role in risk function and will be valuable to companies in that way. Actuaries have to prove their value and what they have to offer in the risk space – with the appropriate and relevant skill set, there is no reason why they cannot take a leading role in the risk arena.
Notes:
Media potential – Roger is not willing to speak publicly about mortgages or areas that reflect on his professional role with HBOS, but he is happy to comment on issues surrounding Solvency II and risk management measures surrounding its implementation.
His interview could also be a valuable resource when changes in risk management education are introduced. The announcement of a new course, or risk management focus, would be a potential press release.
July 2008