Cedric Stephens | Risk management practices evolving

ADVISORY COLUMN: INSURANCE HELPLINE

This column began in June 1997. It started by offering independent advice and information about insurance. During its 22.5 years, it has expanded beyond insurance to include the much broader topic of risks.

Risk has many definitions. The one that is most appropriate, calls it “ a probability or threat of damage, injury, liability, loss, or any other negative occurrence that is caused by external or internal vulnerabilities, and that may be avoided through pre-emptive action”.

My column last week, “Bright-light epidemic”, is one example of the new direction. Others pre-dated it. I reviewed a few others that were written over the period from July 2017 to February 2020.

This small sample of my 904 Gleaner articles provides evidence of the evolution provide more examples of the change that is under way: Memo to the Ministry of Economic Growth & Job Creation (September 10, 2017); Insurance as a Farming Tool (April 8, 2018); How Catastrophe Bonds Work (October 27, 2019); Fire-safety Education: Important to Prepare … for an Emergency (December 1, 2019); and Risk Management Important for our Schools (December 15, 2019).

As I sat down to write this piece last Thursday, there were several articles about risk in this newspaper. They ranged from an ongoing debate about how to protect children from known sexual offenders, preventing firearms from getting into the hands of criminals while the licensees are overseas, cybercrimes, risk mitigation in the petroleum trade, threats posed by the coronavirus, globally and locally; and the virus that is affecting horses and the racing industry at Caymanas Park. We live in a world and in a country and that are subject to many risks and uncertainties.

The leaders of the University of the West Indies recognise this. A few years ago, they started a programme to provide an understanding of the complex risk issues facing societies like ours and to help in the development of skills to manage them. Successful completion of this course leads to the granting of a Master of Science Degree in Enterprise & Risk Management.

Information on the Mona Campus website says that the “programme is designed to produce graduates proficient in contemporary risk analysis techniques and management practices to address them”. That programme is in addition to the institution’s investment in a Unit for Disaster Studies in the Department of Geography & Geology.

Emergency response routines

A few private sector entities in Jamaica are engaged in the process of embedding enterprise risk management, or ERM, in their operations. ERM, according to Investopedia is “a plan-based business strategy that aims to identify, assess, and prepare for any dangers, hazards, and other potentials for disaster – both physical and figurative – that may interfere with an organisation's operations and objectives.

“The discipline not only calls for the identification all the risks that companies and other entities face and to decide which risks to manage actively, but it also involves making that plan of action available to all stakeholders, shareholders and potential investors, as part of their annual reports. Industries as varied as aviation, construction, public health, international development, energy, finance, and insurance all utilise ERM.

“Companies have been managing risk for years. Historically, they've done this by buying insurance: property insurance for literal, detrimental losses due to fires, thefts, and natural disasters; and liability insurance and malpractice insurance to deal with lawsuits and claims of damage, loss, or injury. But another key element in ERM is a business risk—that is, obstacles associated with technology (particularly technological failures), company supply chains, and expansion—and the costs and financing of the same.”

An executive in one of Jamaica’s leading companies told me recently that almost immediately after the January 28, 2020 earthquake, his company had activated its disaster response strategy. This would not have happened, he said, if the company had not implemented ERM.

Bureau of Standards Jamaica has entered the risk management space. Last week the agency announced the launch of its JS ISO 31000: 2019 Risk management guidelines. The guidelines are based on standards that were developed by the International Organizations for Standardization, ISO.

The ISO is an independent, non-governmental organisation with a membership of 162 national bodies. ISO has published more than 22,000 international national standards, according to its brochure. The risk management guidelines are based on ISO 31000 and “provides direction on how companies and other institutions can integrate risk-based decision making into their organisation’s governance, planning, management, policies, values and culture.”

It was disclosed during the launch the government plan to embed the practice of ERM in some of its agencies. This was welcome news to my ears.

Last week’s article elicited responses from several readers. One of them. who said that she would drive from Kingston to Montego Bay on a whim in the past, and who wishes to remain anonymous, wrote: “Bright lights are dangerous, as the eyes take time to adjust”. This statement is accurate. Further, and more important, her view is supported by experts who study the anatomy of the human eye and how it adapts to light and darkness. The adaptation process becomes less efficient with age.

Finally, the evolution will continue. I had absolutely no idea when the journey began in 1997 that it would have lasted this long and move in this direction.

Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com