Julia Graham is Chief Risk Officer of DLA Piper International LLP. Julia has worked in the world of risk and insurance for over 30 years. She was previously head of global group risk management at the insurance company RSA where she had a background in underwriting, marketing, operational management and risk management, as the company’s first group risk manager. Julia is the immediate past Chairman of AIRMIC, the UK association of insurance and risk managers.
Speaking to lloyds.com, the chief risk officer (CRO) of law firm DLA Piper and former chair of the Association of Insurance and Risk Managers (AIRMIC) gives her views on how organisations should be managing risk during a recession.
Q. How does a recession typically affect risk management?
A. Whether you’re in a recession or a boom, a period of terrorism or a period of disease, all these things form part of the environment that you’re managing risk in. What the recession strongly illustrates is that risk management is a continuous and long haul management process and that you have to keep assessing risk and understanding that assessment in the particular environment that you find yourself in.
The recession has pushed some existing risks a bit further down the pecking order. People might think they’ve gone away but of course they haven’t.
Q. What are the risks associated with cost cutting during a recession?
A. The catchphrase at the moment is ’flight to quality’. Although organisations are spending less, when they do spend, they are prepared to pay for good products and services, but buy fewer of them. The logic flows that if you have a prudent cost base and a good reputation, you’re probably doing better in a recession than some others.
Q. Does this ‘flight to quality’ apply to insurance purchasing?
A. I purchase insurance like everybody else and one of the things it’s raised my awareness of is the quality of the carrier that sits beneath the surface and that when you need them, they’ll be there to pay your losses.
One of the challenges of course is how do you judge a quality carrier? It’s not just about ratings or financial outlook; it’s also about service levels and which market initiatives the insurers might ascribe to. For example, insurers that sign up to initiatives such as the UK claims good practice, reservation of rights and speed of settlement are going to be higher up my preferred supplier list than some others. Quality is about making sure that the product I’m buying is there when I need it and that essentially I’m buying the payment of claims.
Q. How do CROs and risk managers demonstrate the value they bring during a time of cost cutting?
A. Risk management is an overhead like any other and if the function can’t demonstrate value then they will be subject to cuts like any other overhead. Like any function that supports the business, risk management has to prove its worth. This is when key performance indicators are especially important and CROs must demonstrate their own capabilities, especially as business leaders.
Q. How important is it to talk in the same language as senior management?
A. It’s extremely important. Risk management is part of senior management but if you talk in jargon that people don’t understand or get too technical, people won’t respond to you. You need to talk about solutions, not focus on problems, and emphasise that this is what risk management is is all about.
Q. How should organisations protect themselves against crime during a recession?
A. Listen to and react to what’s going through the UK parliament at the moment. Parliament recognises that bribery, corruption and crime are generally on the increase and they’re trying to introduce more effective regulations and legislation to help businesses govern these issues. What’s very tempting, but what companies shouldn’t do in a recession, is cut down on things like security measures or business recovery suppliers. Those are the things that people typically cut but the risk hasn’t gone away.
Q. How should organisations be managing redundancy and restructuring?
A. One of the things we’ve been doing as a law firm is providing advice for clients, and there are a couple of things you’ve got to be very careful of. My recommendation would be to take appropriate professional advice and then use that with the culture and business practice of your organisation. Don’t suddenly go ‘alien’, communicate in a way that people understand and stay true to what you are, but do all that with experts standing by your side.
Q. How should organisations prepare to emerge from recession?
A. What most big organisations are doing is making sure that they are fit to emerge from the recovery starting blocks quicker than the competition. Preserve the core of what you do. Keep the right people in the right place and do your best to keep them occupied, so that when things start to improve, you’re fit and able to emerge ahead of the competition when the starting gun goes. Examine your business processes. Could they use a fitness check? Now is the time to do this.
