In many organizations, the individuals responsible for enterprisewide risk management come from backgrounds in insurance, loss control, safety engineering, claims handling or human resources. Some of these people have earned university degrees in risk management and insurance, but overall, few high-level risk professionals have had much formal education on it. This is especially true when it comes to managing the exposures that have resulted from the unprecedented organizational changes that have developed over the past 10 years.
The U.S. economy, like the economies of most countries throughout the developed world, has increasingly shifted away from production of goods and services to the management of information and in particular, to the management of information that drives financial statements. What is alarming about this change is the limited degree to which senior managers have been formally educated to anticipate and respond to the magnitude of risk that they face daily.
This is a particularly difficult problem for mid-sized organizations that do not have any personnel specifically dedicated to risk management. By default, this responsibility often rests with the president and chairman of the board for these organizations. In some cases, the chief financial officer or chief operating officer gets the job instead. This can be a huge burden to these positions, in addition to their financial, marketing, administrative, human resources, political and economic responsibilities. As a result, risk management runs the danger of getting left on the back burner. Recent corporate failures to adequately manage risk have already shown the serious impact this can have on stockholders.
Those responsible for risk management often cope with these responsibilities rather well. They learn from their experiences, whether these are in organizational operations, finance, accounting, insurance, human resources, information technology, engineering or general management. They access information made available to them through computer-based instruction and they use mentoring as a process to deliver important data to associates who can benefit from it. They also benefit from the many excellent college-level programs designed to equip risk management professionals with some essential skills.
At the University Level
Some of the leading schools offering programs of academic study for the field of risk management include Temple University, the University of Wisconsin, the University of Pennsylvania, the University of Georgia, Georgia State University, Florida State University, Northridge, California State University, Appalachian State University and St. John’s University.
According to the most recent edition of the College Blue Book from Macmillan References, USA, there are at least 18 colleges or universities in the United States offering undergraduate degrees with a specialization in insurance and risk management. Macmillan also identifies 11 schools offering a master’s degree in insurance and risk management; six of them also offer doctorate degrees.
While the long-standing commitment of these institutions is commendable, it is a small group compared with the number of educational institutions offering degrees in other areas of management specialization.
It is tempting to believe that the widespread benefits our economy could derive from the effective application of risk management skills would send thousands of students in search of academic programs. Sadly, many schools that formerly offered degree programs in risk management have been forced to drop their programs due to lack of student interest. Perhaps this will change in the future as the application of risk management concepts are shown to have great social and financial benefits to business, government and the non-profit sectors of the world economy. Furthermore, as salaries for risk managers and chief risk officers become competitive with other senior management roles, greater visibility for the risk management profession may motivate increased support for the growth of educational alternatives.
In efforts to attract and retain students, institutions of higher education seem to disagree about how to categorize their risk management course offerings. Some, like Appalachian State University, incorporate their risk management course offerings in a department of Finance, Banking and Insurance. Others, like the University of Wisconsin, Madison, organize risk management courses within a department of Actuarial Science, Risk Management and Insurance. California State University locates the study of risk management under the department of Finance, Real Estate and Insurance. A few schools, like Florida State University, establish a department of Risk Management, Insurance, Real Estate and Business Law.
Educational institutions gain some economies of scale by combining the administration of various academic subjects. Typically, institutions combine the administration of risk management curriculum with insurance, finance, real estate, law and banking courses. While it is difficult to criticize efforts to improve efficiency, the combination of separate academic disciplines often results in greater control being granted to one of the combined disciplines at the expense of the others. Also, the organization of academic disciplines suggested by the name of the department managing them suggests something about the senior administration’s philosophy of education.
Different Philosophies
Consider the undergraduate business degree program with an insurance and risk management concentration as offered at the University of Pennsylvania. Penn’s Wharton School (with a common economics focus to all 19 business concentrations offered) says this about its undergraduate program: “The insurance and risk management concentration examines the techniques useful to corporations, organizations and individuals in minimizing the potential financial losses arising from their exposure to risk. These techniques range from traditional insurance products (e.g., property-liability insurance, life-health insurance, pensions and employee benefits) to current advances in corporate and insurer risk management (e.g., risk financing and retention, non-insurance risk transfer, catastrophe derivatives).” To satisfy the four-course concentration, the Web site says that students choose four of the following: Financial Strategies & Analysis: Insurance; Employee Benefit Plan Design and Financing; Business Insurance & Estate Planning; Property and Liability Insurance Company Management & Policy; Risk Management and Treatment; Economics and Financing of Health Care. This blend of subjects seems to reinforce the institution’s commitment to a broad economics content for their degree.
An alternative to placing risk management under the insurance umbrella is to structure the curriculum so it emphasizes risk management. The Risk, Insurance and Health Care Management department at the Fox School of Business at Temple University makes such a distinction. St. John’s University took this idea to the next level when it merged with the College of Insurance. As a branch of its Peter J. Tobin College of Business, St. John’s shows its commitment to highlighting risk education by dedicating its Manhattan campus as the School of Risk Management, Insurance and Actuarial Science.
Georgia State University locates its risk management curriculum in the Department of Risk Management and Insurance within its Robinson College of Business and counts 25 faculty members. The focus, according to Dean Sydney Harris’ welcome statement on the Robinson College Web site indicates a strong applied focus to all of GSU’s programs.
The University of Wisconsin, Madison offers BBA, MS, MBA and Ph.D. programs. Like other undergraduate courses in risk management, students are required to complete four courses among a group of risk management- related courses to satisfy the undergraduate concentration. Graduate studies permit a more focused approach to the field.
Searching for Practical Education
Through these examples, it should be apparent that some of our country’s finest universities have chosen to treat with great seriousness the need for perpetuating a defined body of knowledge that, at least, forms a basis from which a prospective risk manager can begin acquiring practical experience. That ongoing commitment by our institutions of higher learning to affirming certain shared knowledge assures that risk managers can confidently refer to their field of specialization as a profession.
While even the best collection of undergraduate courses cannot prepare a graduate for all of the wide-ranging responsibilities encountered in a profession, the educational experiences should provide a general indication of things to come. Unfortunately, advanced graduate programs vary even more than the undergraduate programs in their course content and in the focus of their institution’s administration. Some tend to emphasize theoretical research and preparation of new faculty for appointments in other institutions of higher learning. Here is what the Wharton School says of its insurance and risk management Ph.D. candidates: “The program prepares students for careers as college and university faculty members with a teaching and/or research specialization in risk and insurance.”
While there is clearly a need for academic specialists capable of completing a prestigious and rigorous graduate program, the orientation of the learning experiences is not likely to prepare graduates for managing the myriad of practical problems likely to dominate a risk manager’s time when dealing with the unanticipated outcomes of a managing major corporate disaster. Contrast the intent of the Wharton academic approach with the intent stated in Temple University’s applied approach to risk management education.
This brief discussion of the differences among our sources of risk management higher education to illustrates the difficulty that even our best educators are having in determining how to meet the learning needs of the risk management profession. We should appreciate the difficulties they face in identifying and responding to the magnitude of skills that are likely to be needed by risk management professionals.
Perhaps we can look forward to hiring tomorrow’s new risk managers from a more adequately prepared group of college graduates. Meanwhile, as these earnest few continue their efforts to identify knowledge our profession will need in the future, those of us with risk management responsibilities today have little time to go back to school to gain skills we need right now. Our immediate needs dictate a practical approach toward acquiring knowledge.
Continuing Education
Scott Lange, former director of risk management for Microsoft, says in his 2000 book, E-Risk: Liabilities in a Wired World, “We are heading at blinding speed into a completely new world built on a foundation of information and communication technology. Change—driven by technology and put in motion across society—will be the biggest risk of all to manage.”
In an environment where change is the constant and adaptability distinguishes the successful competitor, our sources of learning must mirror our surroundings. We look to our peers to gain understanding of how to best respond to change. Within our organizations we use our access to data, past experience, industry trends and emerging information to aid our decision-making. Outside of our own organizations, we seek the input of others who face similar challenges and who are willing to share what they have learned.
Professional associations are one external source of learning that is increasing in importance. For example, frequent special topic seminars are offered by RIMS and other risk associations. Such seminars address special topical interests and bring together practitioners from a wide range of organizational operations. Short seminars can be assembled more quickly than university curriculum and then delivered in temporary facilities located and rented for convenient access by attendees. Evaluations of the learning experience provide immediate feedback with which to inform the design of future seminars. In addition to meeting continuing education certification requirements, these seminars provide opportunities for interaction among professionals with whom new problems and possible solutions can be discussed.
Another source of short-term learning continues to be the Insurance Institute of America in Malvern, Pennsylvania. The Institute continues to offer the courses leading to the Associate in Risk Management (ARM) designation. This theoretical approach to identifying, analyzing, quantifying and monitoring risk, developed by Dr. George Head, provides a structured and logical process for managing risk. For two decades, study toward the ARM designation was the only non-university alternative for professional development. The risk management profession owes a great deal to the dedication of Dr. Head and others for their perseverance in maintaining a structured collection of learning experiences that guided many a prudent decision.
Since 1996, risk management professionals, whether full-time, part-time, consulting or just curious, have been exploring an applied perspective to understanding the daily operations of responding to risk through the Certified Risk Manager (CRM) program offered by the National Alliance for Insurance Education & Research of Austin, Texas. The same organization that created the practical courses of the Certified Insurance Counselor (CIC) program, under the direction of Dr. William Hold, now offers five 20-hour courses leading to of the CRM designation. In addition to establishing a structure with which to understand the essential operational issues associated with risk, the CRM Program provides a basic understanding of risk management data gathering and technological fundamentals, defines a risk analysis process, explores risk financing options, discusses ways to create risk management procedures, explores the administration of a risk management program, considers methods to collect and analyze data, and examines the evolving role of risk management consultants and fee-based services. Perhaps of equal importance to the content of the courses is the facilitated interaction among attendees who represent a wide range of experiences dealing with different aspects of managing risk.
Professionals must continue to access sources of lifelong learning. The concept of mandated continuing education adopted by many state legislatures and professional organizations to encourage the updating of a minimum level of current knowledge in professions that are licensed, certified or evaluated by peers.
The primary benefit of continuing education, however, is to help organizations survive the unprecedented changes that are occurring in today’s economic, social and financial world. These changes are becoming more challenging and require a permanent commitment to understanding the fluid nature of risk in an increasingly uncertain world.
Leonard J. Watson, Ed.D., CIC, CPCU, AIC is Associate Professor of Organizational Management at Palm Beach Atlantic University and president of Phoenix Resource Systems, Inc., in West Palm Beach, Florida.
