In preparing the insurance Industry Risk Report, Risk & Insurance posed these questions and more to a primary insurer, a reinsurer and two brokers, as well as to an industry analyst.

For the most part, the industry players find little difference, if any, between their own risk profiles and those of the publics they serve.

The analyst sees the industry's own risks as significantly different and a good deal more difficult to handle than those of other businesses. He's unimpressed with the industry's capability or willingness to deal in sophisticated fashion with its own risk management (see accompanying story).

Risk: Through the Eyes of a Reinsurer

Andreas Beerli, CEO of the Americas Division of Swiss Reinsurance Co., is one who believes that risk in an insurance/reinsurance enterprise is "fundamentally different" from risk in most other enterprises, at least in this respect: For insurers and reinsurers, risk transfer is a product. "Accepting and diversifying risk is the central activity of a reinsurer," Beerli says. "Risk is our business," while for others risk is an "unwanted byproduct" to be managed and transferred.

In addition to insurance risks, Beerli points to credit risks and financial market risks as inherent to a reinsurance portfolio. "As a professional risk taker," he says, "Swiss Re consciously assumes these risks. It attaches high priority to understanding, steering and controlling its exposure to risk in order to keep its risks well diversified, to avoid undesired accumulation of exposure to either an individual risk or some highly dependent risk factors and to avoid exposure to undesired risk."

Then, too, there are the operational risks associated with the reinsurer's own operation, as opposed to the operational risk it assumes from others in reinsurance contracts.

One of these, says Beerli, is the "unprecedented public and regulatory scrutiny" the reinsurance business is under today. "These challenges add to the strategic relevance of pro-active issue management efforts," he says.

Swiss Re's response is a formal process which identifies, analyzes and communicates topics of strategic relevance. Current "top topics" include liability regimes, nanotechnology, mortality trends, natural catastrophes, terrorism and mad cow disease.

How does the company manage and mitigate its risks?

"Swiss Re systematically screens evolving risks and assesses their impact on insurance," says Beerli. "Based on this, appropriate measures are taken ahead of time, that is before the risk is manifest in the form of unexpected claims."

Doing this has been a part of Swiss Re's operations for a long time, he says, pointing to its "Nat Cat" research unit, which was set up in the late 1970s to study of climate change and its impact on reinsurance--a project undertaken during the 1980s.

The company also places strong emphasis on risk selection and risk steering, which "mainly means solid underwriting," says Beerli.

Overall, he says, "Swiss Re has a sophisticated risk management process, and organizational units dedicated to risk research and risk management. In addition, we use detailed, proprietary quantitative models to calculate capital allocated to the various risk categories."

Risk: Through the Eyes of a Behemoth

Merritt W. Fabel is director of corporate risk management and insurance at the giant American International Group. To Fabel, the defining point between AIG's risk profile and those of others is not narrowly drawn.

"First, we're not a pure insurance company," he says. "We're a financial services company. That includes property-casualty insurance, life insurance, accident and health insurance, and annuities. On the financial services side, it includes a host of activities, like consumer finance and lending, the leasing of commercial aircraft and automobiles and real estate investments. And all of these activities are done on a global basis."

So, to Fabel, what makes AIG different is that any one of these functions would be a big company in its own right, whether domestic or foreign. "But we're global, in 130 countries," he says.

Generally speaking, he says his biggest risk management challenges are the traditional issues of communications, data gathering, and, if there is a loss, regardless of it scope and size, business continuity.

"The thing is to immediately identify the active risks of loss." That is, those risks which tend to be in every operation--like commercial liability, auto liability, property insurance and other risks that have an impact on your personnel, he says. "Then you focus as best you can on the passive risks, the ones that are less obvious, where you have to look into the operation to identify them. Where you have to take a second and harder look."

"Insurance may not be the ultimate solution," Faber says, noting that contractual issues, consensual risk transfer, certain risk control activities, and self-insurance, as examples, may have to be addressed.

On a global basis, he points to AIG's investment and real estate activities as his "most exciting" challenges. He talks about working with the organization's people overseas to identify the kind of insurance that's appropriate and necessary, and of overcoming time differences, currency differences, regulatory issues and language barriers. "And insurance at certain levels just may not be available in the same forms that you're familiar with."

AIG's traditional risks are the same as for anyone who sells a professional service for a fee--notably commercial liability, errors and omissions, and the typical workers' compensation problems you have with repetitive-type jobs spread over a large office work force. (AIG has 80,000 employees worldwide, 60,000 domestically.) The company also has a fleet of about 2,400 automobiles for its loss prevention people in the field, adds Fabel, "so there are the issues of driver training, constant follow-up and driver education."

Where are new and emerging risks coming from? From sources you read about in the newspapers: mold, asbestos and repetitive-motion claims. "These are the key issues which impact employees who occupy large offices," he says.

"We have the same risk and insurance management problems of many other companies," he says. "We share a lot of commonality, so we're always looking to what others are doing to keep ahead of the curve. That helps to take the mystique out of who we are. We have similar problems, we implement similar solutions, for similar efficiencies. And we have similar successes."

Toward this end, AIG is one of a group of insurance companies and financial institutions of like kind--about 30--that meets semi-annually to discuss risk management issues. "If I had a question today at 1 o'clock and sent out an e-mail to the entire group, I could probably count on 8 to 12 replies by the end of the day," he says.

Risk: Through the Eyes of the Middlemen

View the same world through a broker's eye and the conversation about inherent risk turns to managing client relationships, and retaining clients, as the hard market and pricing corrections start to level off.

"As the market begins to close, the focus on client retention will be a much bigger issue," says Corey Gooch, a senior consultant in the international risk management division of Aon.

"It's somewhat of a strategic issue," Gooch says. "If you look at risk management in the broader context, one of the bigger risks for Aon is client turnover."

Also at the top of his list are issues associated with the integration of the numerous acquisitions made by Aon, as well as expansion into emerging markets, like China and India, and understanding the political and regulatory risks inherent in managing these undertakings. "You don't want to make a bad bet in a new venue," he says.

Like AIG's Faber, Gooch was reluctant to talk about an Aon enterprise risk management initiative, saying, "It will be a major issue for us and a lot of other organizations in 2004 and beyond."

The smaller broker is less cosmic in his risk worldview. Mark Lyons, for instance, isn't much interested in enterprise risk management. He sees the insurance business as "less volatile" than a lot of others.

Lyons is with the West Des Moines, Iowa, firm of LaMair-Mulock-Condon, an Assurex Global partner. His risk management concerns these days center almost exclusively on professional liability (errors and omissions, in particular) and Internet exposures.