Almost every business owner has some understanding of risk. Whether it’s risk within the broader economic environment, cybersecurity risks, or risks associated with hiring, a traditional enterprise is exposed to uncertainty from all angles. Historically, business owners have mitigated this risk through a ‘divide and conquer’ methodology: by partitioning various risks into silos, such as finance or cybersecurity, risky areas of the business can be assigned to relevant personnel and monitored accordingly. 

Enterprise Risk Management (ERM) is a departure from the traditional approach to business risk. Instead of sectioning off risks into silos of the business, ERM looks at business risk as part of a collective whole. By thinking of the business as a portfolio with various strategic objectives, ERM can better assess any potential obstacles. 

What is Enterprise Risk Management?

In the risk management and claims industry, this aspect of ERM takes on an especially important role. When mitigating risks are the business model, a ‘top down’ approach to risk across the entire company becomes even more critical. For a global economic environment that has recently seen a pandemic, inflation, and environmental disasters, professionals suggest that it may be better for organizations to create a culture resilient to risk, rather than trying to predict it. This includes:

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• Establishing context
• Identifying risks
• Analyzing risks
• Prioritizing risks
• Treating risks
• Monitoring and review.  

It’s virtually impossible to predict the next global event, nor is it possible to predict even the smaller forms of instability. Financial risks, cybersecurity events, or new regulations happen unexpectedly. However, risk management professionals can mitigate these risks - for themselves and for their customers - by identifying key strategies and goals. 

What does Enterprise Risk Management look like?

For example, if a publicly traded company is looking to make money for its shareholders, it should look at what’s currently doing the money-making: the competitive advantage or differentiating factors that make the business unique. With these in mind, the organization might decide to grow by adding new products or services to this core goal. When thinking of risk, it might prioritize a few key objectives, such as adding a new product line to the company or offering more services. 

From this lens, the ERM-focused organization might be concerned about areas of risk like supply chain disruption, costs of labor, or changing market trends. Instead of a siloed approach to risk (the risk of plant closures or manufacturing delays, the risk of a worker strike, etc.), the ERM approach would focus more broadly on the possible barriers to goals: leading to a more robust perspective overall, and one that can better withstand multiple types of global risk. 

How does ERM impact workers’ compensation?

If enterprise risk management takes a proactive approach to managing risk, then the same is true for workers’ compensation. In broad strokes, how much you pay in workers’ compensation is determined by the rate you pay and the number of claims you have. A higher rate might mean a more dangerous industry, or it could mean a greater number of claims in the past. 

More hazards in the workplace (such as the use of heavy machinery or tools) can lead to both direct and indirect workers’ compensation risk. A customer could slip or fall in the factory or near the equipment, leading to financial (litigation) as well as hazardous risk. Paperwork heavy manual workflows could lead to repetitive hand injuries or strain. Financial circumstances in the global economy may lead to demographic change, which leads to the organization being short staffed - and paying less attention around all these machines. 

It’s less important that ERM covers every aspect of the business, and more important that ERM processes are capable of identifying them all. In the situation given above, knowing a risk like human capital (being short staffed) combined with hazards (like heavy equipment) can cause harm to employees can potentially do more to prevent worker injury than either consideration alone.

ERM in the risk-management industry

Keeping an eye on key indicators of risk is one strategy organizations can use to mitigate change. For example, underwriting losses in the insurance industry, attrition among staff at a property or casualty insurer, or a slew of environmental events can all be part of the warning signs that can make up a larger trend. When these risks are linked to the organization as a whole - and its strategic goals - it’s easier for risk management professionals to ‘steer the ship’ in the right direction.  

For more insights into how ERM is impacting the risk-management industry, the Risk Management Society (RIMS) is hosting the leading enterprise risk management event, RIMS ERM Conference, to gather risk professionals to share their valuable insights. Learn more from esteemed speakers, presentations, and networking connections of those within the industry on how implementing ERM strategies can advance your organization and set you up for success.