Older investors' 401(k) Woes

As the stock market falters, older individuals are losing large amounts if not all of their 401(k) savings. Many report having lost 35% to 45% of their savings and that percentage is still climbing.

Those planning on retirement in their late 50’s or early 60’s are now making plans to work a decade longer because their savings will not recover in enough time.

Traditionally, 401(k) plans have provided retirement income for the majority of Americans; however, now people are seeing that if the stock market is volatile, they can actually lose more than what they put in.

This is a very troubling situation to read about, and with companies like GM suspending their 401(k) matching and raising costs such as healthcare, it is very hard for individuals to save for retirement these days. What can people that are close to retirement age do to recoup at least some of their retirement savings?

http://www.usatoday.com/money/perfi/retirement/2008-10-30-retirement-401k-funds-stocks-savings_N.htm

Taxpayers Still on the Hook……

Taxpayers could possibly be responsible for the millions upon millions of dollars in legal fees that the executives of Fannie Mae and Freddie Mac may incur because the mortgage giants had contractual agreements with them to cover their legal expenses. After the government bailout, this legal bill was passed to the government, thus, potentially leading to the taxpayers footing the bill.

Doug Heller, the executive director of Consumer Watchdog put it best when he said, “Who'd have thought we might be on the hook for paying the defense costs when we're also paying the prosecution costs?” The government is trying to avoid this from happening; however, this could lead to more pricey legal battles over who has to pay the bill.

To make matters even worse, the companies also have agreements to cover legal costs from shareholder lawsuits, which taxpayers could potentially have to pay for as well.

This article angered me a lot. Why are we, the taxpayers, who are being laid-off and losing our entire life savings still being forced to support the actions of greedy executives? First we bail them out, then we pay their legal fees, and if they get acquitted, who knows what else we will be paying for? Where is our bailout…

http://www.insurancejournal.com/news/national/2008/11/07/95360.htm

AIG to Terminate Voluntary Deferred Compensation Plans

AIG is terminating its deferred compensation programs. About $500 million belonging to well over 5,000 employees will be distributed in the first quarter of 2009.

AIG’s deferred compensation plan works by letting an employee voluntarily defer some of their earnings until they leave the company or retire. The company is terminating these types of plans because they do not want any further incentive for their employees to leave the company. The company is concerned about individuals leaving because AIG is working hard preserve the value of its businesses to both sell to pay off the bail-out loan and to rebuild AIG.

I believe that AIG is making a very wise decision. The financial crisis, coupled with the downfall of AIG is leaving employees with little reason to remain at the company. Many of the employees lost their savings in the economic turmoil, and will probably leave in order to obtain funds they are in urgent need of.

http://www.insurancejournal.com/news/national/2008/11/14/95543.htm

Property/Casualty Insurers Want No Part of Government Rescue Funds

This article relates to the previous blog…

Reports have stated that the federal government is thinking about adding life, bond, and mortgage insurance companies to the list of recipients for bailout money, and property/casualty insurers do not want any part of the deal. The insurers are ready to decline any funds if the U.S. Treasury decides to make them available.

A survey by the American Insurance Association (AIA) shows that the majority of insurers represented by them do not agree with property/casualty insurers being on the bailout recipient list and will not participate if they do so.

The chairman of ACE Group and AIA, Evan Greenberg, stated that AIA members "believe that, as property/casualty insurance writers, they are well-capitalized and well-positioned to weather the current financial market crisis without the assistance of the CPP announced by Treasury.”

http://www.insurancejournal.com/news/national/2008/10/27/95021.htm

CPP Offers Insurers Competitive Advantage

Chubb, an insurer, says that P&C insurers should not receive funds from the US Treasury because it would give them an unfair competitive advantage. CPP was created to infuse the financial system with liquidity in times of distress.

Chubbs COO, John Degnan, stated, “We do not believe that allowing property and casualty insurance companies to participate in the CPP is consistent with the stated purpose of the Act,” in a letter to the Treasury. He also stated that the P&C industry does not pose any systematic risk to the economy and therefore does not require a bailout.

Degnan went on to state that if P&C insurers participated in CPP, there would be an adverse affect on competition because the insurers would be allowed to get capital at a lower costs than their competitors. He claims that it would be unfair for companies such as his who have been cautious and conservative with their business practices and investing, but would not be able to take advantage of the bailout.

http://www.strategicrisk.co.uk/story.asp?sectioncode=23&storycode=375112&c=2

US Financials Outperform Europe as Counterparty Risk Falls Sharply

A report by Credit Derivatives Research showed earlier this month that counterparty risks among major financial institutions have declined significantly. The CDR’s counterparty risk index was the lowest it had been in more than a month.

The US financial credits were better that Europe’s with almost a 20% difference in the amount of drop in risks. US banks experienced a drop in risk of 53%. US brokers had an average reduction of risk of over 50%.

http://www.creditflux.com/digest/2008/10/16/us+financials+outperform+europe+as+counterparty+risk+falls+sharply+says+cdr.htm

AIG on the Edge of Collapse Says Former CEO

The former CEO of AIG, Maurice "Hank" Greenberg, stated that with every passing day, the restrictions on the bailout loan are pushing AIG closer to failure. In a letter to CEO Edward Liddy, he said, "Time is clearly running out." He told him that is was imperative that AIG began talks about renegotiating the loan. Additionally, Greenberg said that to government was effectively nationalizing the company. The government could receive up to an 80 percent stake in the company.

Greenberg also said that taxpayers, employees, and investors in the company could be hurt with losses that could be incurred under the current loan arrangement. He is concerned that with the current loan structure AIG is being forced to sell assets and that is very hard under the current economic conditions. He said that this indicates that there is “little hope” that the loan will be able to be repaid.

http://www.reuters.com/article/businessNews/idUSTRE49T9SR20081030?feedType=RSS&feedName=businessNews

Chinese Melamine Scandal Continues

Recently, it has been reported that melamine is probably being added to Chinese animal feed. Several reports have stated that the contamination could span many parts of the entire food chain.

Initially, the melamine fiasco began last month when thousands became sick from contaminated milk. Then the problem broadened when traces of melamine were found in Chinese eggs. Authorities hypothesize that the cause was probably from contaminated feed given to the hens.

This week, many Chinese newspapers said that the use of melamine in animal feed was not an isolated event, and that this practice is prevalent. It is reported that the industry has used melamine in feed in order to reduce cost while still producing the appropriate protein count to pass inspections.

http://news.bbc.co.uk/2/hi/asia-pacific/7701477.stm

Medical Groups Against Avandia

Top medical groups from the US and abroad have persisted that doctors stop prescribing the diabetes drug Avandia, a product of GlaxoSmithKline.Members of the American Diabetes Association and the European Association for the Study of Diabetes decided unanimously against the use of the drug.

On Thursday, October 30, the consumer group Public Citizen asked the U.S. Food and Drug Administration to ban the drug.The group says that the usage of the drug increases the risk of heart attact, as well as causing 14 cases of liver failure resulting in 12 deaths.

GlaxoSmithKline responded by stating that they do not believe that there is a connection between liver failure and Avandia, and claims that the drup is safe and effective. Regardless of their claims, sells of the drug have dropped very significantly since last year.

The FDA is currently debating over whether to ban the drug completely or let is stay but with more warnings.

The petition from Public Citizen poses a very serious reputational risk that can cause GlaxoSmithKline a great deal of money in the future. The company should began taking steps in order to deal with restoring their reputation.

http://online.wsj.com/article/SB122537774874284331.html?mod=googlenews_wsj

Reinsurance Market is Hardening

In class a couple of weeks ago, we discussed the difference between a soft market and hard market in the insurance industry.

A study from Benfield indicates that pricing trends in the global reinsurance market are changing as the beginning of the year renewal season approachs due to the credit crisis and increasing losses from Hurrican Ike. They predict a hardening of the reinsurance market.

Beinfield’s report, Capital Consequences – Billion Dollar Question, shows that while Hurricane Ike was only a Category 2 hurricance, it has been more costly than was previously predicted and losses are still climbing. The losses from the 2008 hurricanes have been amplified by companys’ investment losses.

Angie Coad, a member of Benfield Research stated that, “Losses and loss of confidence are a potent mix for changing behaviour. The onset of global recession and associated increase in cost of claims could act as a catalyst for both insurers and reinsures alike.”

http://www.strategicrisk.co.uk/story.asp?storycode=375156

Increasing Fraud Due to Credit Crisis?

While in class a bulk of our discussions focus on financial related risk, as Dr. Klein stated, it is important to consider other risks as well, such as people risks.

This particilar aticle warned that the recession could lead to higher levels of claims against liability policies.

Suzanne Kearney, and insurance company director, described the credit crunch as ‘potentially a breeding ground for fraud.’

She stated that during the financial downturn in the 80’s motor fraud increased rapidly and she is seeing the same trends right now. Currently, motor fraud is at risk of increase and claims are on the increase in even the most well ordered companies.

She also stated that obvious signs of fraudulent injury can include a sudden unexplained rise in claims at one location, refusal to entertain non-financial compensation such as rehabilitation, and repeat claimants.

http://www.strategicrisk.co.uk/story.asp?sectioncode=23&storycode=374842&c=2

Increased IT Risk – Internet Crime

The FBI has stated that internet criminals are becoming more knowlegeable and are committing more attacks.

Shawny Henry, the newly appointed head of the Cyper Division of the FBI, stated that the agency is dealing with thousands of cases right now dealing with cyber crimes and attacks. He stated that recently international law officials took down a large organized criminal unit that was buying and selling stolen financial information online.

He also said that this increase in crime poses a serious threat to national security, as over 20 other countries have become interested in infiltrating US networks over the year. Additionally, new hacker coopertives have been forming in an effort to combine their expertise and committ more organized crimes.

http://www.strategicrisk.co.uk/story.asp?sectioncode=23&storycode=374856&c=2

Troubling Issues with Your 401(k)

Recently some employers, such as GM, have told their employees that they will suspend matching their contributions in their 401(k) until the economy gets better. This is tough for employees to deal with as they are already battling rising health care cost and job cuts.

Results from a recent survey by Watson Wyatt Worldwide show that 21% of employers surveyed stated that they have raised the employee contributions for health care and another 25% said that they planned on doing the same within the next year. Additionally, 19% laid off workers and 26% will do so in the next year.

Currently, employers have been trying to use stopping or reducing their 401(k0 contributions as a last alternative. Only a small percentage has done so, however, many say that they will resort to this if this period of economic turmoil persists.

On the bright side, analysts say that individuals should keep contributing to their 401(k), and that it will pay off in the long run.

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/25/AR2008102500045.html

FSA Lessens Requirements for Life Insurers

The Financial Security Assurance has eased capital requirements on life insurers due to the crisis in the global economic markets according to Financial Times.

The regulator has recognized the fact that capital adequacy requirements should be reviewed as heavy attention is turned on Solvency II.

If insurers are having problems in meeting capital demands, the FSA plans to be flexible with them.

http://www.strategicrisk.co.uk

Insurers Should Prepare for Pandemics

Lloyd's has a warning stating that insurers must prepare for the threat of pandemics. The company’s emerging risk teams feel as if a pandemic poses a threat because they have a history of reoccurring every 30 to 50 years meaning one should occur in the near future. Trevor Maynard, emerging risks manager, stated that it is imperative for businesses to make sure that they are not the only one unprepared for a pandemic should one occur and then perform worse than competitors.

Lloyd’s report, predicts that a worldwide pandemic could devastate the global GDP by up to 10 per cent, thus creating heavy losses for insurers. Maynard emphasized the fact that companies should not prepare for one particular worst case scenario, instead they should safeguard against many different types of pandemics.

http://www.strategicrisk.co.uk/

Smokers Pay More

In class this week we discussed how insurance companies sometimes charge more for people who are obese, smoke, etc.

Recently, the South Carolina State Budget and Control Board approved a change that states that public employees that smoke will have to pay $25 more a month for health insurance. This will begin January 2010.

It is estimated that this new law will affect almost 100,000 state employees. Right now the higher rate would be charged per policy not per person; however, South Carolina’s Governor is leaning toward charging the fee for each smoker.

While some may disagree with this policy, I think that it is an excellent ideal. Why should people who opt for a healthier lifestyle pay for those who choose otherwise? Smoking related health problems are preventable, therefore, smokers should have to pay more. Besides, maybe laws such as this will have positive results such as making people stop smoking.

http://www.thestate.com/local/story/490653.html

Increases in Supply Chain Risks

Marsh has conducted a study and their findings show that while firms are improving efficiency in their supply chains to cut costs during this economic crisis, their efforts are increasing their risk exposures.

This risk exposure arises because firms are likely to monitor their largest suppliers closely and try to increase efficiency within those transactions, thus ignoring their smaller suppliers that are more vulnerable during tough economic times. If a small company that is crucial part of a company’s supply chain experiences trouble this could stop the process of production and order fulfillment.

Marsh states that companies should evaluate their supply chains in order to find ways to lower the risk. The options Marsh suggests include:
· reviewing their business interruption strategies, supplier network and financial exposures
· taking advantage of new insurance solutions that address risks that have not previously been regarded as insurable.

http://www.insurancejournal.com/news/international/2008/10/17/94734.htm

Chinese Milk Crisis and Supply Chain Risks

Because China’s food sector is very intricate and globally involved, the recent melamine contamination crisis is proving to be a serious issue causing several supply chain difficulties.

The current contamination has led to Chinese milk products being banned by numerous countries, and companies are going to extreme measures to protect their reputation and disassociate their products with milk ingredients from China.

First there was lead paint, then Chinese pet foods began killing out pets, and next we were scared to brush our teeth because of contaminated toothpaste. Now we have to worry about poisonous milk products. This latest issue has led to even more degradation in China’s reputation for product safety. This is just another problem to indicate that cheaper isn’t always better.

http://businessassurance.com/the-impact-of-the-chinese-milk-crisis-on-global-supply-chains

Sustainability on the Backburner

Because of the recent credit crunch, well over 70% of company leaders are not considering sustainability as a priority. A study performed by Echo Research shows about two-thirds of companies see sustainability as a low or non-priority for business, and about half stated that businesses will not do much of anything concerning sustainability during the economic crisis.

While the current credit crisis should be at the forefront of businesses priorities, maintaining sustainability should never be omitted from a company’s “to-do” list. Focusing on sustainability and understanding how the company effects the environment and people in its surrounding helps with financial management and ultimately pushes economic success.

http://www.strategicrisk.co.uk/section.asp?navcode=19

Progressive’s Big Brother Auto Insurance

In class on Thursday, we briefly discussed how insurance companies have been offering monitoring devices in order to monitor their customers driving habits.

Progressive Auto Insurance’s MyRate provides data to the insurance company that details the driver’s speed, number of miles driven, the time of day the driver drives, and how “aggressively” they drive. The insurance company presents MyRate as a way to promote safer driving and clean up the environment. They even received an award from Fast Company for their new and innovative ways to provide an incentive for individuals to choose alternative means of transportation and drive safer. When you visit the Progressive website you are inundated with quotes from Progressive Execs stating how much they care about the consumer and want to offer as many insurance options as possible while still protecting the environment.

I may be cynical, but I really don’t believe any of the goals of the MyRate insurance program. There is no way that I can believe that the MyRate general manager and his team sat down and said to each other, “How can we make the world a better and safer place?” The conversation probably was more like, “How can we reduce our costs by separating the low risk drivers from the high risk drivers without explicitly stating it.” Don’t get me wrong, I know some of the main goals of the insurance company are to minimize costs and risk; however, I dislike the fact that they present their product as a “we-care-so-much-about-our-customers” type of thing. The fact that people may become safer drivers or drive less is merely a positive side effect, not something that was intentionally planned.

http://auto.progressive.com/progressive-car-insurance/myrate-device.aspx

AIG Had Early Warnings…

In March, a letter was sent to AIG warning against risks that may arise due to the company’s lack of transparency and inability to manage its financial products.

A Democratic representative, Rep. Henry Waxman, disclosed a letter from (OTS) and warnings by AIG's accountants at a current hearing. The letter warned about weak spots that AIG should focus on. In particular, the letter stated, “We are concerned that the corporate oversight of AIG Financial Products ... lacks critical elements of independence, transparency, and granularity…”
At this hearing, lawmakers also displayed anger when discussing the perks AIG executives are currently enjoying even though they have just been bailed out. For instance, execs racked up bills for $200,000 for hotel rooms and $23,000 for spa services.

When examining, AIG’s internal documents, is showed that AIG execs ignored problems even though there were clues that the company was in trouble.

Articles like this always tend to make me angry. Once again, the greedy big time executives win out and leave the taxpayers to pay their bills. When will this all end?

http://www.insurancejournal.com/news/national/2008/10/07/94411.htm

AIG Plans Customer Retention….

This article basically discussed how AIG CEO Edward M. Liddy felt about the future of AIG. He was quoted as saying AIG is” doing very well in the marketplace," regardless of what the opposition might say. He also stated that AIG is focusing on retaining its current customers and is "making good progress."

He mentioned that the company would not lower prices in order to keep customers and will uphold its pricing discipline. He went on to say that although there was a period of concern when the Fed first rescued the company, since then things have calmed down.

Liddy stated that the company also plans to sell off certain assets such as some life insurance and financial product units in order to pay back the federal government’s loan, but it would not be selling its U. S. commercial lines. He plans on making these sells to “brand name” companies.
Finally, Liddy went on to say, "This is a very strong company and we will emerge from this crisis."

My first thought after reading this article was, “How can AIG possibly retain its customers when the company’s name is in the news everyday associated with financial failure?” But then I thought about the huge government bailout and realized that it is completely possible. It made me upset, because it brought me back to the thought that the big financial giants get saved while the little taxpayers suffer the losses. While the bailout of AIG might have been the “right” decision, it just seems that throughout history there have been instances of greed and wild spending by these large firms and the taxpayers have had to pay the bill. Is this not just encouraging other companies to engage in unnecessary risks in the future?

World Economic Forum Warnings

The World Economic Forum (WEF) has warned that companies should not focus all of their attention of the current financial crisis without paying any attention to managing future risks. Basically, firms need to spend time assessing the current risks in order to protect them from the recent financial failures, while focusing on long-term risk as well to secure future growth.

The fact that there may still be failures in major financial institutions, continuous default in the consumer credit arena, etc. has increased the threat of future risks. Sheana Tambourgi, head of the Global Risk Network of the WEF, said: ‘'We understand how difficult it is for organizations to look at future risks to growth in the midst of such turmoil but our experience shows that long term planning for growth remains paramount and neglecting it could be equally damaging.’

http://www.strategicrisk.co.uk/story.asp?sectioncode=23&storycode=374311&c=2

Execs Forced to Better Manage Pension Plan Risks

In class on Tuesday, we briefly discussed risks associated with companies with defined benefit pension plans. I found an article discussing how firm executives have been devoting more attention to containing these risks during this time of financial uncertainty.

Financial execs from North American companies with DB plans are shifting the focus away from making a return on their assets and putting more effort into eliminating risks associated with their pension plans. In fact, a survey from Towers Perrin shows that 76% of companies surveyed have made that shift. The extreme strain caused by failing financial markets coupled with new regulations put forth in the Pension Protection Act are forcing financial teams to manage pension plans more effectively.

The current financial state has companies worried about their pension plans impacting their cash flows, income statement, balance sheet, and their ability to comply with regulatory requirements. To manage these risks, companies are mainly focusing on improving their portfolio management techniques rather than changing their plan designs or involving third parties. 21% of the companies even reported that they are now managing their pension risks together with enterprise risk management techniques, and 46% said there was some coordination with broader risk management structures.

http://www.towersperrin.com/tp/showdctmdoc.jsp?country=usa&url=Master_Brand_2/USA/News/Spotlights/2008/Sept/2008_09_08_spotlight_pension_risks.htm

Microinsurance: Helping the Poor with Risk Management

Recently, Bill Clinton announced the initiation of LeapFrog. It will be the world’s first and microinsurance firm. It will cater to the need of low-income individuals. The firm will invests $100 million over the next 10 years and allow millions of poor people in Africa and Asia to have access to insurance services that they can afford.

Clinton estimates that there are about a billion people that are in need of this type of insurance with about 3% of those having no insurance at all. Dr. Andrew Kuper, the founder and president of LeapFrog, stated that by catering to low-income nations there is a very large opportunity to create a lucrative and sustainable business while helping poor people escape poverty.

This microinsurance will protect the poor by assisting them in managing diverse risks that may be incurred in their lives, homes, property, health, crops, and businesses. Without insurance, they find it difficult to recover from shocks, take business risks to increase their income, build assets and thus escape poverty permanently.

http://www.insurancejournal.com/news/national/2008/09/28/94121.htm

U.S. Treasury to the Rescue….

The U.S. Treasury Department and Congress have come up with a plan to spend as much as $700 billion to bailout banks and financial institutions and keep the financial system afloat. This new plan could bring the government’s bailout bill to nearly $2 Trillion. This link gives detailed information on where the government plans to spend the money:

http://www.insurancejournal.com/news/national/2008/09/21/93887.htm

Is this good or bad?

Perusing the Internet, I found several articles about whether it is a good ideal for the government to bail all of these companies out or not. Many disgruntled taxpayers feel as if these institutions should be allowed to fail and that companies are being rewarded for bad decisions. This is seen by a quote from Paul in Portsmouth, N.H. "It is time for the financial institutions of this country to be called to the mat. We should be expecting and demanding responsible and ethical business practice, not rewarding it at the expense of taxpayers."

On the other hand, others see the move as necessary because the threats of financial system collapse. This sentiment can be seen from Surfta in Brooklyn, N.Y."It's NOT a bailout. The government is not handing out cash, they actually stand to make a great deal of money out of this, which will trickle down to YOU. First priority should be to try to control and fix the problem, then regulate sufficiently to make sure this NEVER happens again."

I especially liked an article by Mike Adams in which he compares the government’s actions to how doctors treat patients with health problems. “Mask the symptoms and ignore the cause.” You can read this at http://www.naturalnews.com/024260.html.

What do you think?

Is this government bailout necessary? Are big financial institutions getting a free ride while taxpayers are footing the bill? Is there another way to solve this massive problem?

Is your money still safe?

With financial giants failing like Lehman Brothers and AIG, investors have been worried about their investments in mutual funds. Mellody Hobson, a financial contributor from “Good Morning America” explained whether investors should be having sleepless nights or if the current economic crisis is just a bump in the road.

Is your mutual fund in trouble?

Below is a synopsis on how Hobson says you can check on your mutual fund:

· Call your fund company's call center and ask if your fund is currently investing in any of the companies that are in the headlines — like Lehman Brothers and AIG.

Also, ask the representative about the fund's quality controls.

· Be weary of money market funds with an expected return of more than 2 percent. The higher the return, the higher the risks.

· Choose money market funds for quality not promises of a higher yield. If a fund is advertising a higher yield it’s best to stay away.

Should I be panicking? Will this happen to other mutual funds?

Hobson says no. She stated that the situations with institutions like Lehman Brothers are atypical in the market and that since the first money market funds were created, there has been only one case where a fund fell below a dollar.

Hobson also stated that her sources say that there is no need to worry about the funds as only a limited amount owned Lehman Brothers and the parent companies are covering the investments.

Finally, she went on to say that money market funds are secure because the industry is one of the most regulated in the country and that the benefits of investing outweigh the risks.

Read this article at: http://abcnews.go.com/GMA/Consumer/story?id=5824937&page=1

WaMu in trouble too

Recently, Washington Mutual’s shares sank to a 17-year low and if the company does not improve its financial situation by finding a buyer or raising enough capital to bounce back from mortgage woes, repercussions could be dire. Analyst attribute the fall in stock price partially to the situation with financial giants such as Lehman Brothers. WaMu has already lost billions of dollars and predicts that losses due to the mortgage crisis could amass to $ 30 billon within the next couple of years. In the last year alone, the company’s shares have fallen 93 percent. Last week Standard & Poor’s lowered WaMu’s credit rating to one level above the junk rating.

What implications does this have for us – the taxpayers?

Bank analysts have speculated that if WaMu doesn’t find a buyer then taxpayers will have to pay a hefty bill of $24 billion to bail the company out. This bill will come from the guarantees of the government for federal mortgage loss to persuade buyers to purchase WAmu. Some potential buyers include Wells Fargo, HSBC and Royal Bank of Canada and the Royal Bank of Scotland.

Where did WaMu fail?

The previous CEO Kerry Killinger accelerated WaMu’s rapid expansion by pursuing the questionable areas of the amortization mortgage business.

Currently the bank’s balance sheet holds the following:
* $52.9 billion in Option ARM mortgages.
* $60.4 billion in HELOC loans.
* $16.1 billion in subprime mortgages.
Analysts think that the company will lose over 30 billion in defaults over the next year.

Washington Mutual lacked enterprise risk management. Just this week, the company announced an agreement with its chief U.S. regulator, the Office of Thrift Supervision (OTS), calling for better risk management and compliance. The company took a reactive approach instead of a proactive one. Instead of combating risks before they occurred, risk management is being used as an afterthought.

Links:
http://news.yahoo.com/s/nm/20080910/bs_nm/washingtonmutual_dc
http://www.nypost.com/seven/09142008/business/wamu__no_wampum_129032.htm

PriceWaterhouseCoopers Survey Raises Questions on Enterprise Risk Management

In a previous class, we discussed the cost of risk and the goal of risk management. We discussed the fact that the goal of risk management is not to minimize risk, but to lower the cost of risk and maximize firm value.

A recent survey from PricewaterhouseCoopers suggests that while the insurance industry has taken significant strides to implement enterprise risk management techniques, the usefulness of these practices is being questioned. PWC’s survey indicates that many insurers are concerned about the effectiveness of ERM and whether or not it can create a return on investment. While the majority of insurers responded indicating that they had implemented ERM programs and that it is a top priority, the survey shows that teams in the workplace do not fully understand ERM and that it is sometimes not relevant in certain situations. Also, ERM is not incorporated when making every day decisions, strategic planning, etc.

Basically, the survey shows that while companies have made substantial progress in establishing ERM programs, ERM has not been fully integrated into regular business practices and unless this is done ERM will not be able to meet the firm’s objectives.

To read more about this, visit the article : http://www.insurancejournal.com/news/international/2008/07/02/91533.htm