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Was it an “incident” or an “accident”? How a shared risk lexicon facilitates effective communication across a company

A_failure_to_communicate.jpgOver the course of my career as a risk manager, I’ve come to understand the importance of—and ongoing challenge in—aligning the risk management department’s priorities with those of the C-suite. Just last week, I read a great article, published by Advisen, about potential disconnects between risk management and the C-suite.

The article got me thinking about the importance of communication in the practice of risk management. Specifically, when it comes to communication between risk management and the C-suite, translating risk and insurance jargon into meaningful business terminology is one of the more common challenges for risk managers.

For the tenants of the executive suite to fully understand how risk issues, including insurance, impact the business, it’s important for risk managers to translate jargon into the business terms that will resonate with operations and financial management. In the hectic world at the top of any large company, if a topic is not understood, it can be relegated to “unimportant.” As risk officers, it is part of our role to prevent that.

When we risk managers communicate with our teams, carriers, actuaries and brokers, we usually have a solid shared understanding of terms like:

  • Actuarial accretion
  • Incurred losses
  • TIV
  • Self-insured retention vs. deductible
  • Medicare set aside
  • Any of the disability terms in WC (TTD, TPD, PPD, etc.)
  • GL
  • Casualty Collateral
  • Bonds

However, when we communicate with the C-suite (and, for that matter, with our peers in other departments), we can’t assume that everyone knows what we mean by terms like those above.

One of the risk manager’s primary responsibilities is to facilitate understanding and comprehension of risk and insurance throughout the organization. Developing a well-understood set of terms to describe risk—known as a “risk lexicon”—is a prerequisite to meeting that responsibility.


In the hectic world at the top of any large company, if a topic is not understood, it can be relegated to “unimportant.” As risk officers, it is part of our role to prevent that.


 

Risk lexicons differ from company to company, because the same words don’t have the same meaning in, for example, a lumberyard that they do in an academic or retail setting. Each company has to adopt a set of terms that adequately describe risk issues in their business, are understood and are in common use throughout the organization.

A simple example is the use of the term “accident.” Does that mean the same as “incident”? The answer to that will vary between companies. If there is not universal understanding of the terms being used, however, there will certainly be misunderstanding about the underlying risks being described. As an early step in the development of any risk management program, the establishment of an agreement on a risk lexicon should be a priority. 

Once the risk lexicon is established, a risk manager can then move on to another important objective: expressing the value of risk management activities in terms of their impact on operational metrics or, as the Advisen article notes, financial indicators like EBITA (earnings before interest, tax and amortization) or earnings per share. Linking risk management performance to broader organizational metrics is a big topic in its own right; more about that in future blogs.

Jeff Gehrke is Ventiv's Chief Risk Technology Evangelist. Contact Jeff at Jeff.Gehrke@ventivtech.com or ++1.720.445.9531

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RMIS Guide

Dec 4, 2015

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