Global financial crisis: enterprise risk management was not to blame

Speaking before the Association of Professional Insurance Women and the New York Chapter of CPCU recently, MMC president and CEO, Brian Duperreault, defended the concept of enterprise risk management (ERM) from critics who contend that the current global financial crisis represents a failure of ERM.

Mr. Duperreault said: “As we continue to feel the effects of the aftermath of this crisis, people the world over are struggling to understand how banks - which are largely credited with inventing the concept of ERM - made such disastrous miscalculations about the credit markets if they were properly managing their risks. ERM, or risk management, did NOT fail. It was either not understood or applied correctly. And the cumulative effect of that misunderstanding or misapplication has exacerbated the current crisis.

“Indeed, this crisis does not mean risk management didn’t work – far from it. There were pockets in which ERM was properly applied – and it did work. It helped companies avoid disaster.”

"ERM is a concept that needs to be enhanced and enforced, not abandoned. If you bring no other message to your clients about this current crisis, I would urge you to take this to them. It is important that we [do] not throw the baby out with the bathwater."

In his speech Mr. Duperreault cited examples of companies that effectively used ERM by observing what models indicated and by using sound judgment and analysis to guide decision making.

Read a full transcript of Brian Duperreault's speech (PDF).

•Date:15th January 2009• Region: US/World •Type: Article •Topic: Op.risk
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