Best Practice Companies in Risk Management

By: Craig W. Roggow

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Introduction

Best Practice Companies in Risk Management

Risk management acts as a fundamental element in any company. The capacity of a company to manage different risks plays a massive role in determining its performance. The use of effective risk management practices provides an excellent operational platform for a company. There are various outstanding companies in the field of risk management. The American International Group (AIG) is an example of a best-practice company in risk management. The extensive number of clients for AIG underlines the company’s excellence in risk management. AON is another exceptional company in risk management. With a foothold in over 100 nations, AON offers wide-ranging solutions in the field of risk management. AIG and AON are excellent model companies in risk management. This presentation evaluates the similarities and differences of both organizations as best practice companies in risk management. Additionally, the presentation focuses on an implementation framework for best practices in risk management in an organization.

Objectives of this study

  • Identify and explain what these best practice companies do within risk management.
  • Define the similarities between AIG and AON.
  • Describe major differences between AIG and AON.
  • Critique AIG and AON best practices.
  • Implementing best practices.

 

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Analysis

American International Group (AIG)

AIG is categorized as one of the leading insurance organizations in the USA and the globe at large. The company offers extensive services in risk management. AIG has a foothold in over 120 countries and more than sixty thousand employees. A notable risk management service offered by AIG is mortgage insurance (Kong & Singh, 2005). This product is highly popular in the lucrative real estate sector. Life insurance is also a risk management service provided by this firm. Other products include retirement and casualty insurance among others. The clientele for AIG is highly diverse.

This is because the company acts as an insurer for individuals and also large multinational organizations. With such an extensive clientele base, AIG has the capacity to provide competitive premiums for the different risk management products. Marketing is an essential component of AIG’s strategic blueprint (Cummins, 2007). The company uses exclusive marketing agents in some countries and independent marketing in other nations. This enables the company to tap effectively into different markets for risk management services and products. In view of such a strategic blueprint, the profitability of AIG is very high.

AIG is an outstanding company in risk management. The company’s efficiency in providing insurance is highly relevant for this study. The company’s marketing strategy is also useful in line with the study of risk management. It helps in evaluating the merits and setbacks of different marketing agencies for insurance. The company’s operational framework is an excellent model that exemplifies how companies can minimize risk. In order to succeed in the insurance sector, a company should use the necessary platforms in determining the rates of premiums for different products.

AIG has been highly efficient in terms of offering competitive premiums (Sullivan, 2006). Diversity of products acts as another essential pillar of success in risk management. This attribute is notable within the operational framework of risk management. It is also essential to pinpoint that AIG uses excellent strategies while seeking reinsurance services. Reinsurance has greatly boosted the profitability of AIG and its capacity to cover the risks of different customers. These aspects justify the relevance of AIG in the study of risk management.

AON Plc.

This company is globally reputed for the provision of an extensive range of risk management services and products. While the company is British, it has been strongly established as a leading multinational entity in the insurance sector. AON offers both reinsurance and insurance services across the globe (Chew, 2013). This entity is an employer of about sixty five thousand people. This firm acts as the principal insurer of some of the world’s largest organizations and brands.

AON is a dominant force in the United States insurance sector. Rigorous marketing has been a fundamental contributor towards the remarkable success of the company in risk management. Independent and exclusive agents are integral platforms used by AON in marketing. In addition to mainstream insurance services, this company provides brokerage services. This is a significant component of the revenue-base of AON. The company is a provider of professional consultancy services in insurance and risk management. The extensive range of services also includes outsourcing. Such diversity has greatly boosted the competitiveness of the insurance and reinsurance services of AON. The product range of the company is also equally extensive. (Kong & Singh, 2005) This includes terrorism, political, environmental, and database risk management.

The risk management solutions of risk management are offered to numerous industries and sectors. The scope covered by AON ranges from the aviation sector to higher education. Aon also offers risk management solutions for agriculture and health care sectors. Such diversity has been a principal factor behind AON’s capacity to attract high-end and small-scale clients. It is pertinent to outline that this firm provides an exceptional standard of flexibility in the different insurance products. This is massively convenient in risk management due to the high levels of uncertainty.

Similarities

Both AIG and AON have global footholds. The companies are active in over one hundred countries. They are categorized within the top 10 best companies in the global insurance sector. They offer multiple insurance solutions for numerous industries. In essence, the insurance services in both entities are highly diverse. These companies are also similar in that they use both the independent and exclusive agency systems for marketing (Sullivan, 2006). This attribute has facilitated for success in AON and AIG. Both entities have been notable sponsors for global sports brands. For instance, these companies have had partnerships with Manchester United. Another similarity is that both AIG and AON offer specialty-underwriting solutions for risk management.

Differences

While AON and AIG are massive competitors in the global insurance sector, they are characterized by numerous differences. AON offers extensive brokerage services for clients and also other insurance services. In contrast, AIG does not offer brokerage solutions for insurance companies or individual clients (Cummins, 2007). Consequently, insurance brokerage is an outstanding aspect that underscores the difference between AIG and AON (see table exhibit 1, below). Reinsurance acts as another attribute that exemplifies the difference between both companies.

The extensive range of risk management solutions offered by AON includes reinsurance services. In contrast, AIG is a mainstream insurance company. While AIG offers insurance services on one broad platform, AON has three main subdivisions. The three subdivisions focus on outsourcing, reinsurance, and risk management respectively. While AON offers extensive outsourcing services, AIG does not. Compared to AIG, Aon is a relatively new company in the global insurance sector (Chew, 2013). The latter was established in 1982 while AIG was founded back in 1912. Such longevity enhances the ease with which AIG can attract partners and customers.

Critique

The premium rates offered by both companies are considerably flexible. This ensures that different insurance buyers have numerous options within the risk management solutions provided by AON and AIG. The best-practice companies have also been effective in the choice of agency systems for marketing. In essence, the companies employ exclusive and independent agencies depending on the needs of different markets. Such a strategy has been helpful in strengthening the performance of both companies. With such an extensive global foothold, it would be essential for AIG to offer reinsurance services (Kong & Singh, 2005). The company has the resource-base and logistical platforms required in offering reinsurance solutions. The diversity of risk management solutions at AON has greatly cushioned the company from potential losses.

Implementation

The implementation of best-practices in risk management requires a thorough evaluation of the different risks. An ineffective risk assessment acts as a potential contributor of excessive losses. In contrast, an effective framework for risk assessment ensures stability and profitability in the organization (Rejda, 2011). There are different risks that may face an organization. Some of the risks are preventable while others are beyond the control of human beings. In view of such variance, the premium rates for different risks might vary.

As a manager of the organization, it would always be prudent to seek insurance from an insurer that offers great diversity in terms of risk management solutions. In such a company, it would be possible to acquire adequate cover for different types of risks at affordable rates. The risk management framework of any organization must be highly flexible. Flexibility is put into perspective because of the high level of uncertainty in the modern world. For instance, the insurer should have the capacity to facilitate a switch from one type of insurance to another (Sullivan, 2006). This ensures that the organization is adequately covered irrespective of future uncertainties.

Conclusion

AIG and AON are excellent model companies in risk management. The former is a British firm while the latter is an American entity. These companies are characterized by excellent standards of dynamism in risk management. AIG’s operational framework is an excellent model that exemplifies how companies can minimize risk. In order to succeed in the insurance sector, a company should use the necessary platforms in determining the rates of premiums for different products. The solutions of AON cover multiple industries including the highly risky aviation sector. These are attributes of an exceptional company within the field of risk management. A lot of technical aspects of risk management can be gained from the evaluation of AON practices. Both firms offer multiple insurance solutions for numerous industries. From the perspective of differences, insurance brokerage is a pertinent aspect. AON offers extensive brokerage services for clients and also other insurance services. In contrast, AIG does not offer brokerage solutions for insurance companies or individual clients.

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References

  • Chew, D. H. (2013). Corporate risk management, Columbia University Press.
  • Cummins, J. D. (2007). Handbook of international insurance, Springer Publishers: New York, NY.
  • Kong, J. & Singh, M. (2005). Insurance companies in emerging markets, IMF Publications: Washington DC.
  • Rejda, G. E. (2011). Principles of risk management and insurance, 11th Edition. Prentice Hall: Upper Saddle River, NJ.
  • Roggow, C. (2013). Best Practice Companies in Risk Management. Retrieved from: http://mergerandacquisitionstrategies.org/best-practice-companies-in-risk-management
  • Sullivan, G. (2006). Risk management: Safeguarding company assets, Thomson Learning: Boston, MA.