The Evolution of Risk Management

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The Evolution of Risk Management
In an originally french published book in 1916, Henry Fayol identified risk



management as a security function among the six basic functions of a business
firm.! In 1931, the American Management Association established its
Insurance Division for exchanging infOrmation among members. In 1950 the
National Insurance Buyers Association was created which became in 1955 the
American Society of Insurance Management (ASIM). In 1969 the name of the
society'S magazine was changed from the National Insurance Buyers to Risk
Management and in 1975 the name of the Society was changed to the Risk and
Insurance Management Society (RIMS).2
Risk management has been re..<fiscovered by multinational firms in the
United States after World War II. The general trend in the current usage of risk
management probably began in the early 1950s. One of the earliest reference to
the concept of risk management in the literature appeared in an article by Russel
Callagher in the Harvard Business Review in 1956.3
In October 1988 the first world congress on risk management was sponsored
by the International Federation of Risk and Insurance Management Associations
(IFRIMA). Today, the Association has 22 members around the world. The latest
national association were created at the end of the 1980s in Singapore, Malaysia
and the Philippines.
48 THEORY AND PRACTICE OF INSURANCE
The risk manager evolved from the insurance manager because risk
management is broader than insurance in that it deals with the choice of the
appropriate techniques for dealing with pure risks including insurance. Felix
Kloman argued recently that "organizations have been challenged by newer and
more dynamic risks, risks that have not been addressed effectively by the risk
management that is tied to the insurance industry."4 His argument is that risks
in an organization are closely interrelated and that the risk management function
should address all risks in a comprehensive approach.
Despite its potential and scope, risk management is not yet recognized as a
major element of corporate organizations. The approach of analyzing specific
industry uncertainties in isolation from general environmental uncertainties has
come more often under criticism. It is also arguable that to confine risk
management only to handling pure risks is too restrictive a view of its function
since pure risks are inevitably intermingled with decisions bearing on business
risks. An integrated managerial approach should analyze all the sources of
uncertainties that affect the total risk of a firm.

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