The challenge is to find the best balance between risk and reward and to be consistent in the approach to managing risk, so that opportunities are not missed, says Zurich’s Terry Wang
Every organisation seeks to protect its people, property and profitability. Yet, taking risks is a necessary part of growing a successful business. If an organisation acts too cautiously or is averse to risk, it may fail to grow. The challenge is to find the best balance between risk and reward and to be consistent in the approach to managing risk, so that opportunities are not missed and potential threats are mitigated.
Having a robust and flexible framework in place for managing risk enables organisations to achieve their desired balance of risk and reward. Enterprise risk management (ERM) is one such framework. Corporate directors and officers use ERM to link strategic planning and capital allocation processes with the risks that could stop their businesses from meeting strategic and operational goals. An ERM framework enables organisations not only to manage disruptive risks but also to leverage the right risk as an opportunity for creating value.
Chinese companies can do many things to improve their risk management capability to support the mitigation of risks. This area is particularly important as many Chinese companies are still in an early stage in establishing their ERM systems. In their eyes, risk management merely means insurance placement – they believe that insurance will handle all the risks they might encounter. There is long way to go before a real risk management mechanism is established and applied at most China-based corporates.
A comprehensive ERM mechanism would help Chinese firms understand and profit from the risks they face. For example, ERM should be used to develop various internal guidelines to comply with regulatory risk, as it should be used in dealing with commercial risk.
Risk management is not merely risk transfer; many other techniques should be adopted to avoid or mitigate risk. The ideal situation is to eliminate risk before it converts into real losses. Risk scenarios can be evaluate in many ways, but the key is to find the right one for the particular company in question and to have its people properly implement the techniques.
Terry Wang, Head of global corporate & commercial Zurich General Insurance Company (China)