State Farm’s Enterprise Risk Management Implementation

State Farm’s Enterprise Risk Management Implementation

Jacob K.

Position Paper 1

Downton University

Professor Mark Camp

Introduction

Enterprise Risk Management (ERM) is becoming increasingly popular in organizations across the globe. ERM is a conceptual framework that assists an Enterprise with assessing, prioritizing, monitoring, and reporting Enterprise level risks. Traditional risk management has involved an organization’s ability to deal with pure risks, which are risks that can only have negative or neutral outcomes – but no possibility for upside risk (Banasiewicz, 2014). ERM takes a new approach that seeks to capitalize on “upside” risk by tying risk management to an organization’s strategic decision making (Banasiewicz, 2015). The challenge is to determine the right amount of risk or uncertainty to accept in order to create the most value. Enterprise Risk Management adds value when it is successfully linked to organizational objectives and viewed as a core organizational competency. But this plays itself out uniquely in each organization, since ERM is a self-governing endeavor (Banasiewicz, 2015).

This paper seeks to discuss the implementation of ERM principals within State Farm Fire and Casualty Company, my current employer. State Farm, like most large organizations, has great incentive to implement an ERM framework enterprise-wide. State Farm is a very large organization. It contains bank, life, auto, and fire companies. As a result, there are innumerous risks that State Farm is exposed to. Through ERM, State Farm can realize economies of scale and create a risk management model for all departments to follow and be held accountable to when assessing and responding to risk and opportunity. The increasing interdependency of world financial markets due to globalization has raised the importance of effective enterprise risk management across industries and economies (Banasiewicz, 2015). Additionally, both A.M. Best and Standard & Poor’s now...