Think Like a Risk Avoider Instead of a Risk Manager: Common Insurance Mistakes, and How to Avoid Them

By Kevin M. Quinley CPCU, ARM

So many risks, so little time. It's easy to become gun-shy as insurance and risk professionals. When this feeling comes into play, it reveals another mistake often seen among insurance professionals is that of thinking like a risk avoider instead of a risk manager.

Remember, our jobs are to manage risk, not to avoid it necessarily. Every business action involves risk. In fact, standing still and clinging to the status quo also entails risk. Risk is inherent in business as in life. Doing nothing entails risk.

Here are some tips on how to counter-act this common pitfall:

Consider the risks of doing nothing. The insurance professional can always find a risk-related reason to avoid undertaking some proposed organizational action, whether it be a possible merger or acquisition, introducing a new product line or revising the employee handbook. There is always a reason not to do something. Pitfalls and potential liabilities can be arrayed against any proposed course of action.

Avoid "Chicken Little" Syndrome. The insurance professional must guard against the occupational peril of becoming -- or being perceived as -- merely a nay-sayer, one who always shoots down other ideas on the basis of excessive risk. The insurance specialist should identify the risks of any proposed course of action and -- this is critical -- develop an action plan to cushion or finance the chance of loss. Without this, the risk manager may become viewed as a Chicken Little, a nay-sayer who always focuses on The Dark Side of the Force.

Look at the positive side of risk. According to Dave Parker, Risk Manager for the Arizona Department of Transportation, "This is not a world for risk avoiders, but for risk managers. New risks to manage means that creativity is critical." Look at the positive side. New risks create new insurance and risk management opportunities.

As a claim adjuster, underwriters often told me, "Consider those tough, loss-intensive accounts to be job security for you claims people." (I'd retort, "Thanks a lot, but there is such a thing as too much of a good thing!") Similarly, insurance professionals can view new risks – not as any guarantee of permanent employment – but as new opportunities to show one's mettle. If all the risks were easy to manage and address, anyone could do it!

Consider the broader business picture. It is easy for insurance managers to become occupationally tunnel-visioned. For example, when Eli Lilly, the pharmaceutical giant, began facing lawsuits involving Prozac, some patients also sued the doctors prescribing the medication. To stand behind its product and physicians, Lilly took the unusual step of offering to defend any doctor named in a lawsuit due to his or her prescription of Prozac. A different company in the biotech industry made a comparable offer to its physicians with regard to lawsuits against an injectable substance used in cosmetic surgery.

From a pure, narrow risk management standpoint, one could argue against these gestures. Why embrace defense of the doctors and expand your liability? In practice, few physicians took the manufacturers up on these offers. The goodwill engendered by this gesture paid dividends by physicians, however, who saw that the companies stood behind their products. The bigger business picture -- retaining market share and customer/physician goodwill -- overrode the risk and liability concerns. These are examples of how the bigger business picture transcends a narrow risk management focus.

Adopt a "can do" approach to build credibility with upper management. Upper management looks for insurance managers who are "can do" individuals. Upper management wants the insurance professional to address the issue of, "How can we best do this?" rather than, "Here's why we shouldn't do this." To adopt a can-do approach, the insurance or risk manager builds credibility within the organization and good karma with upper management. To be sure, there will be times when the insurance person must wave the red flag on some proposed course of action. There are times when an emphatic and principled stand is appropriate. This is likely to be the exception, not the rule, though.

There may be times when, despite the insurance manager's well-reasoned recommendations, the organization proceeds on to undertake some initiative. In this case, upper management has made a business decision to take a business risk. These types of decisions are made every day. The insurance specialist must put ego aside and not be thin-skinned, viewing them as a referendum on his or her clout.

These five steps will help view risk as a positive. The Chinese pictogram for danger also stands for opportunity. This applies to risk as well. By adopting the preceding five tips, insurance professionals can help avoid one of their biggest risks -- professional obsolescence.