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Risk managers attempt to frame an ethical code.

Risk Managers Attempt to Frame an Ethical Code

Developing viable ethical systems by which to live and work has been a challenge to mankind since the advent of civilization. As we near the beginning of a new millennium, age-old questions about ethical standards and how they apply to particular work environments are still being hotly debated. At the recent Atlanta RIMS Educational Conference, panelists discussed theoritically and practically how developing strong ethics can help risk managers successfully navigate through "life's gray areas."

According to H. Felix Kloman, vice president of Tillinghast, America has experienced a breakdown in ethical teaching that extends to families, schools and the government. "Have we become an I-want-it-all generation?" he asked. Mr. Kloman said a way must be found to re-establish common cultural link and shared values. "Moreal behavior is the result training, and morality must be an absolute," he said. "Life will supply the qualifications and life itself is a gray area."

Robert Esenberg, risk management administrator for the City of Virginia Beach, agreed with Mr. Kloman. "Society has gotten away from the golden rule," he said. "Now it's do unto others before they do unto you." He added that the degree of trust between people in the insurance industry has diminished, but he hopes that is changing. "In the public sector we see attempts to legislate morality and ethics," Mr. Esenberg said. "You cannot mandate ethical behavior by putting it on paper. People won't naturally abide by it just because it exists."

However, according to William Boornazian, senior vice president of Aetna Life & Casualty Co., one can develop a personal set of ethical principles by defining the "stringency of ethical obligations on a descending scale." In Mr. Boornazian's case, that scale consists of correcting self-caused injury, avoiding injury by keeping promises, correcting injury caused by others and voluntarily doing good.

Mr. Boornazian said the ethical obligations stemming from carrying out those responsibilities extends to employees, customers, claimants and stockholders. "I owe my employees the best work environment I can provide," Mr. Boornazian said. "To customers I owe quality and performance, to claimants a fair deal and to my company's stockholders I should be a responsible manager."

According to Mr. Boornazian, a company's image is a direct by-product of ethical or unethical posturing, and the most financially successful companies have high ethical postures and written credos to that effect.

"It is self-defeating to frame lofty principles that are out of sync with daily lives," said Robert H. Moore, senior vice president of corporate relations for Alexander & Alexander Services Inc. He believes the most successful ethical code is set by those determined to live by it.

According to Mr. Moore, ethical models for risk managers flourish when brokers and risk managers work together to prepare for the future rather than preserve the status quo and when they emphasize quality service, innovation and a nurturing partnership; when risk managers on large accounts use more than one broker and do not play off one against the other; and when participants take pride in their work.

As brokers and risk managers work more closely together, Mr. Moore believes they will come to understand that they do not have separate sets of ethical problems but, in fact, share the same ethical dilemmas.

"As the global economy contracts," he said, "questionable ethics could knock you out of the game in the 1990s."

A Hard Market Horizon

In a session that forecast whether a hard market cycle is imminent, panelists were unanimous in their conclusion. It is not a question of if the market will turn...but when.

According to David Peck, senior vice president of Johnson & Higgins, the timing of a return to a hard market may be gradual, but it does seem a foregone conclusion. "The San Francisco earthquake, Huricane Hugo, the winter freeze throughout the South with losses estimated at $1 billion and the windstorms that recently swept through Europe are catastrophes that mark the beginning of a change in market cycle," he said.

As sure as night follows day, we will see a repeat of the cycle before long, said Ray Salter, director of Willis Faber PLC. However, he added that major losses such as the Exxon Valdez oil spill and the $1.25 billion Puerto Rican "aspect" of Hurricane Hugo have yet to be entirely felt in the insurance market.

Gail Norstrom, vice president of operations at Industrial Risk Insurers, said other loss costs that contributed to a bad year in 1989 included nearly $1.4 million in medium-sized company losses. "Industrial plants in the U.S. have been running long and hard and maintenance hasn't always kept pace," he said. "It's true that profit margins have increased but so have business interruption losses."

It is really a chicken and egg question of who starts, follows and ends a cycle, Mr. Peck said. "No particular segment of the insurance industry is to blame. We are all culpable. What I do see, however, is that the time span has shrunk between when we hit the high and low points of a cycle. They seem to hit every couple of years now, not every 10 or 12 years."

According to Mr. Norstrom, the forces that drive the insurance cycle include competition between brokers. "As they set strategy, price policies and forecast future losses, the intermeshing of all these variables comes to a point where the business is spread too thin. That's when people start rethinking their positions and the market turns."

Managing Global Issues

The role of risk managers will deepen instead of broaden in the 1990s with more value placed on indepth analysis and less on international corporate decision-making, according to Brandon Sweitzer, head of Marsh & McLennan Inc.'s Southeast United States and Latin American regions. "Risk managers will follow the company flag this decade," he said. However, he added, due to the lack of risk management as an insurance function in many foreign countries, "American risk managers are potential export items and could influence the international standard of our profession."

All risks are inherently equal, Mr. Sweitzer said, but international risks are more complex, thus more unequal. "You must think about that difference," he told attendees. "And you must learn to think globally instead of bilaterally."

By the year 2000, Mr. Sweitzer predicts that the world will divide into three spheres of economic influence: a Japanese-dominated Asia, the North American market with the United States, Canada and Mexico in partnership and the European Community headed by West Germany.

"As Japan becomes dominant politically and economically in Asia, its relationship with Europe could become uneasy as the Europeans concentrate on stabilizing their market. This opens up the opportunity for the U.S. to become Japan's peaceful partner across the Pacific," he said.

A 'Workable' Eastern Bloc

Vincent Masucci, president of American International Global Inc., said that as Europe concentrates on consolidating its own market, insurance companies will merge and acquire into fewer and bigger entities. "From strictly an insurance standpoint, Eastern Europe is workable right now for American business," he said. "But I would caution speculators not to strike up a happy stance with some bureaucrat - they have their hands full right now. My advice, when trying to penetrate the market, is to work through a solid international carrier or broker with established connections. Don't pioneer."
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Author:Johnson, Tom
Publication:Risk Management
Date:Mar 1, 1990
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