Long before midnight on 31 December, 1999, many of us had tired of the hype and near hysteria associated with “preparing for the new millennium.” Risk managers the world over undoubtedly heaved a sigh of relief, however, when 1 January, 2000, dawned with no significant events triggered by the much anticipated Y2K glitches.

The Center for the Advancement of Risk Management Education (CARME) - a division of the American Institute for CPCU and the Insurance Institute of America, headquartered in Malvern, Pennsylvania, near Philadelphia - has been preparing risk managers to meet this and other risk management challenges since CARME's flagship program, Associate in Risk Management (ARM), debuted in 1970.

The ARM designation is recognized as a premier educational credential by the Risk and Insurance Management Society (RIMS), the Public Risk Management Association (PRIMA), the American Society of Safety Engineers (ASSE), and the Board of Certified Safety Professionals. RIMS, in fact, requires that candidates for its new Fellow in Risk Management (FRM) designation pass the three ARM exams (or the three exams in the Canadian Risk Management program) as part of its educational requirements.

The ARM program's quality and level of difficulty have also been recognized outside the risk management field by the American Council on Education (ACE).

ACE evaluates courses and examinations offered outside traditional colleges and universities for their college credit equivalency. ACE has recommended that the three ARM courses and exams be recognized as equivalent to three hours each of graduate credit in an insurance, risk management, or MBA curriculum.

The ARM designation has long been associated with George L. Head who directed the program for 30 years and was most recently a vice president for the American Institute for CPCU and the Insurance Institute of America. Mr Head took early retirement at the end of 1999, however, and became director emeritus of the Institutes. He maintains an office on the Institute campus and continues to pursue activities in the risk management field, to which he has dedicated his life.

New risk financing text to be introduced

The ARM designation could not retain its position as a preeminent credential, of course, without constantly updating its curriculum. We have developed a new ARM textbook, titled, Risk Financing that includes material on strategic risk management and finance. In addition to discussing traditional risk financing alternatives, such as retrospective rating plans and captives, the text, which serves as the basis for the ARM 56 course, examines the rapidly evolving discipline of enterprise risk management.

For example, the book goes beyond traditionally insurable risks by explaining the characteristics of various types of operational and financial risk to which organizations are exposed. The discussion of operational risk includes material on credit risk, reputation risk and other types of “business” risks. The discussion of financial risk includes details on interest rate risk, foreign exchange rate risk, and commodity price risk.

The new text also explores nontraditional risk financing alternatives, including integrated risk plans, contingent capital arrangements, insurance-linked securities and insurance derivatives. For example, there is a comparison between the characteristics of an insurance contract (policy) and an insurance option, which is a type of insurance derivative. In addition, the text includes a discussion of the convergence of insurance with other financial services, such as investment banking.

Risk Financing examines the concept of a risk portfolio by analyzing the tradeoff between risk and potential return for an organization's combined risks. An illustration shows how an organization's risk-return relationship can be quantified by constructing an “efficient frontier” of its risk portfolios. Included is a method for estimating the return from taking various deductible levels under an insurance policy.

The finance topics presented include liquidity, financial leverage and cash flow analysis. Under each of these topics, the text discusses various concepts and applies them to risk financing. For example, it explores how an organization can manage the uncertainty arising from its various sources of risk by controlling its degree of financial leverage. It also explains how to measure the cash flow benefit from retaining rather than transferring certain types of losses.

The new Risk Financing text will be published this summer. We have begun plans to update our Essentials of Risk Management text used in the ARM 54 course for publication in 2001. We anticipate publishing a revision of the ARM 55 text, Essentials of Risk Control, in 2002.

The ARM program in Europe

The Institutes have worked with AMRAE, a French association similar to RIMS, to establish a French ARM program. Jean-Paul Louisot, professor of risk management at the business school of the Groupe ESC educational institution, spearheaded the project. He translated the ARM textbooks into French and modified them to reflect risk management and insurance practices in France. He teaches the ARM courses in Paris and coordinates all aspects of the ARM program in France. To date, there are 130 French ARMs, and more than 400 people have taken at least one ARM course in French.

Professor Louisot has helped to establish an ARM program in Switzerland in conjunction with SIBA, an association of large Swiss insurance brokers. The first group of students started ARM 54, which they are studying in English, in January 1999 in Zurich. They will complete the program in May 2000, and a new group will start ARM 54.

In conjunction with BELRIM, the Belgian equivalent to RIMS, and with the support of AMRAE, Professor Louisot is now working to establish an ARM program in Belgium in English and possibly in French.

Two new specialized risk management courses debuted in 1999.

To fulfill our commitment to provide specialized risk management courses, CARME has introduced two significant new offerings in the past year. Developed in cooperation with PRIMA, the Risk Management for Public Entities (RMPE) course was introduced last spring. RMPE explores the risk management decision making process in the public sector and emphasizes how it differs from private sector risk management, both for the protection of the public entity and for the general welfare of the public. Passing the RMPE exam and earning the certificate of completion provides the first professional certification ever available to public entity risk managers.

Also introduced in 1999, CARME's new Global Environment of Insurance (GEI) course is designed for risk managers and others who want to increase their understanding of global business issues. Students of the course gain a framework within which to evaluate prospective and existing global operations. They also gain an understanding of the global business implications of technology and the convergence of businesses through mergers, joint ventures, and strategic alliances. They learn to assess the opportunities and loss exposures affecting global import/export businesses and organizations with operations in multiple countries. They also learn to structure a preliminary analysis of potential global markets for both goods and services.

The new text, The Global Environment of Insurance, which provides the basis for the course, can also serve as a resource for people who want to increase their knowledge of international insurance operations regardless of their interest in pursuing certification by passing the GEI examination.

Our newest risk management related educational offerings are two monographs that explore nontraditional risk financing alternatives. One is titled “Finite and Integrated Risk Plans,” and the other is titled “Capital Market Products for Risk Financing.” They will be available for purchase at the RIMS Conference in May.

Major change in exam format will occur

CARME's risk management programs - including the Introduction to Risk Management course that many entrants into the risk management field pursue to gain an overview of the risk management process and learn the language of risk management - undergo constant and meticulous updating and revision. We will be implementing a major modification of our testing and certification process this fall when we replace the traditional essay style, paper and pen ARM examinations with objective (multiple choice) exams delivered via computer. The ARM exams will be offered for the first time on computer at Prometric testing centers in the United States from 15 November to 15 December, 2000.

Subsequent testing windows in 2001 will be 15 February to 15 March, 15 May to 15 June, 15 August to 15 September, and 15 November to 15 December.

At exam centers outside the US, however, ARM exams will continue to be delivered via paper and pen but in the new objective format.

Other CARME programs already are changing or will change to the objective format over the next few years. GEI exams will be given via computer. For the foreseeable future, Introduction to Risk Management and Risk Management for Public Entities will remain paper and pen exams.

What it means to be a risk management professional

The goal of the ARM program and CARME's other offerings is to educate practising risk managers and prepare them for the challenges of the risk management profession. Mr Head, in Issue 7 of riskVue, an online insurance publication, said in the last interview before his retirement:

“The essence of being professional - in risk management, in medicine, in law, or in the church - is to use one's specialized, advanced knowledge primarily to serve others rather than to benefit oneself. Enabling others - both ARM students and ultimately those whose risks these students manage - to be more productive, safe, and happy in an inherently uncertain world is the core of the professionalism that the ARM program strives to instill.”

Mr Head established a tradition in risk management education that will serve us well as the expanded practice of strategic and financial risk management comes of age in this new millennium.

  • Michael W. Elliott, CPCU, AIAF, is assistant vice president at the American Institute for CPCU and the Insurance Institute of America, CARME's parent organizations. He directs the ARM and Introduction to Risk Management programs and the CPCU 9 (economics) course in the Chartered Property Casualty Underwriter curriculum. He earned a B.S. degree in economics from Harvard University and an MBA degree from Stanford University. He has taught risk management and accounting courses, including courses in loss forecasting, risk financing, and insurance accounting. Before joining the Institutes, he was a vice president in the risk management department of Marsh & McLennan in New York City.