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A call for a British risk management authority.

The annual conference of the United Kingdom's Association of Insurance and Risk Managers in Industry and Commerce (AIRMIC) held in Cambridge in April ended with a debate on whether a guaranteed risk management authority should be established in the United Kingdom. Two speakers proposed the motion and two opposed it. Conference participants then voted against the idea. Should we be surprised at their decision? Surely we should.

There are three arguments against a new national risk management authority: The present system is good enough; an independent authority reporting to government is not the right alternative; and nothing can be done to improve things. Since the first and last of these reasonings lack rationale, what is the right alternative?

Presumably, the risk managers who voted against a national authority fear bureaucratic interference. Perhaps they believe that enough diverse agencies with responsibility for segments of risk management already exist, such as the Inspectorate of Pollution, the Food Safety Directorate and the Health & Safety Executive. They might believe that these agencies should simply be prodded into doing a better job. Perhaps they think that all risk managers really need is more influence within their own companies.

What has become increasingly obvious is that risk management issues have become a national concern. Government is seen to have the responsibility. Therefore, the reasoning goes, it should also have the authority.

No Clear Policy

Of course, government does have authority, but it does not have an authority. The outcomes of fragmented regulatory bodies performing only a small portion of the work are grossly inadequate, as evidenced by the occurrence of frequent, repetitive risk management disasters. A government with no clear policy is nevertheless left to pick up the pieces.

Prominent risk managers recognize the need for government control. According to Dennis Farthing, former chairman of AIRMIC and the Institute of Risk Management, the only incentives available to improve risk are regulatory or fiscal sanctions.

This view recognizes that, broadly speaking, businesses exist to make profits for shareholders. For regulatory and fiscal reasons, companies must ensure that their operations do not kill or maim too many of their employees or members of the public at large (though in some countries, regulatory and fiscal sanctions are so minimal as to permit this with virtual impunity). There are also constraints on destroying too much company or public property.

However, the goal of risk management within a company can never be to eliminate losses irrespective of cost. Its true purpose is to help achieve compliance with health and safety regulatory demands, allotting for risk control only the amount of financial resources on which it can earn at least as much as would have been earned had the revenue been spent on sales, marketing, production or any other part of the company. In other words, if the risk manager can show that $10,000 spent on reducing thefts will save $20,000 over a specified period, then he or she should agree to give the funds to the sales division if it can earn an extra $30,000 on the $10,000 in the same time period.

In short, the risk management objectives of the business enterprise are not necessarily shared by the nation as a whole. This may be why most risk management obligations are imposed by law.

The trouble with the recent jumble of regulatory bodies, authorities and executives policing the responsibilities of safety, health and well-being is that much of their work overlaps, is underfunded, clandestine and even misdirected. On this last point, for instance, the public in the United Kingdom has come to wonder who the Ministry of Agriculture is really working for-farmers, government or consumers?

An independent national authority for risk management would help ensure greater public confidence in official information at a time of increasing concern over public safety and a variety of green issues. It could accomplish this by fulfilling its primary purpose to scientifically assess all risks, including those arising from nuclear power, public transport, environmental pollution, food poisoning, even global warming. It would then bring its findings into the public arena, rationally explained and accompanied with cost schedules for various response options.

Choices in these matters should not be made at any other level, should they?
COPYRIGHT 1991 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:London Perspective
Author:Best, Chris F.
Publication:Risk Management
Date:Jun 1, 1991
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