Life Insurance CFOs on the Future of ERM

Over these last few tumultuous months, there has been no shortage of talk about risk management strategies. Could better ERM saved some companies from their current financial difficulties? Why did ERM strategies that were in place fail? Will more companies invest in ERM technology in the fallout?

In the pages of I&T -- both print and Web -- we've covered the topic, but at last week's 19th Annual Executive Conference for the Life Insurance Industry (quite a catchy name, eh?) held at the New York Palace Hotel, I got a new perspective on things from the point of view of insurance industry CFOs.That perspective came in a Friday session moderated by Ernst & Young's Robert W. Stein and featuring Edward J. Bonach, vice president and CFO at Conseco, David A. Magers, EVP and CFO of COUNTRY Financial and Neil E. Salowitz, the marketing director of Principal Financial Group's insurance advisory group.

Most interesting, I thought, were the comments by some on the panel that asserted that, going forward, the market may create an environment where the products a company wants to sell and the ERM strategies it puts in place may clash with one another.

As COUNTRY Financial's Magers pointed out, many customers -- particularly those in the lower-mid and mid markets -- are realizing now for the first time that there is inherent risk in the market. Many are seeing their 401k plans decline for the first time after years of impressive growth. As a result, the panel agreed, the current financial crisis is breeding a large group of consumers that will be more careful and more involved in their future investments.

Bonach then took things a step further, expressing concern that this will lead to higher demand for more fixed and guaranteed products. Unfortunately, he continued, many guaranteed products are simply not sustainable. It will be key then, in the future, to have ERM plans in place that enable companies to balance the opportunities that abound to sell guaranteed products with the added risk inherent in those products.

Not at the panelists, however, agreed that guaranteed products alone would see increased interest from consumers. Principal Financial's Salowitz said he thought that consumers, as the crisis leads them to seek a better understanding of financial instruments, could actually be more amenable to non-guaranteed products. Consumers, he said, would emerge from the crisis with a better understanding of the nature of risk.

That said, everyone agreed that ERM would be an increasingly important part of companies' overall strategies. "If a company doesn't have a formal ERM plan in place," Salowitz said, "they may not be around in one or two years."