Risky Business: Risk Management and Insurance

Many things in life — driving a car, traveling, buying a home, growing crops, starting a business, even choosing where to live — carry an element of risk. And although not every risk is insurable, insurance products exist to help mitigate and protect against uncertainty and the potential for loss, injury, or damage from many of the common and not-so-common risks we take as individuals and as businesses. As part of the risk management process, we routinely buy insurance for everything from our cars and homes to our health and lives. Beyond the cost of our premiums, most of us will never give insurance much thought until we find ourselves in the unfortunate position of having to make a claim against a policy. And, when it comes to thinking about a career, insurance and the wider risk management industry may seem like a dependable, but perhaps boring, option. Think again.

As a graduate of Troy University’s risk management and insurance (RMI) program, Dr. Courtney Baggett, who now works as the program director, was initially attracted to the degree by the exciting opportunities it presented compared to other business programs. Insurance, she found, is not at all boring.

“I wanted to do something in business, but I had no idea what,” says Dr. Baggett. “What really attracted me to risk management were the opportunities that the program offered. Students in the program were going to London every year, they were attending conferences and career fairs all over the United States, they were getting these great internships — and they were getting paid really well.”

Through these opportunities, Dr. Baggett soon discovered that the insurance and risk management industry was so much more than the “standard” auto, home, and health insurance policies that everyone knows about.

“As an intern, I worked with a woman who was an underwriter on the World Trade Center when 9/11 happened,” says Dr. Baggett. “There were many companies involved in insuring the towers, but she was the person who took the loss for her company when they were attacked. I worked with another guy who underwrote coal mines. I never even knew that you could get insurance for something like that. It quickly became clear to me that this was such an interesting and exciting field, and that you would never be doing the same thing every day.”

What is Risk Management?

Dr. Baggett explains that risk management and insurance are complex. It begins with understanding: What is risk?

“Risk in our world just means uncertainty,” says Dr. Baggett. “Risk management is managing that uncertainty and trying to make things more predictable. In its purest form, risk management accomplishes two things. The first step identifies what losses could happen in the event a ‘What if?’ scenario occurs. The second step looks at how to manage that risk.”

According to Dr. Baggett, insurance is often the answer to how risk can be managed.

“Insurance is one way to finance risk, but there are many other ways to finance risk,” says Dr. Baggett. “I could use derivatives, I could have ‘hold harmless’ agreements, or I could transfer risk in many different ways besides insurance, and sometimes it’s more economically feasible to do that. However, because of regulation, businesses and individuals are often required to show that they have insurance for specific exposures, so insurance will always be a very large part of the risk management process.”

The Surplus Lines Insurance Market

The insurance market Dr. Baggett found herself immersed in during her internships is called the surplus lines insurance market. 

“The surplus lines market insures the risks the standard market is unable to cover,” says Dr. Baggett. “We started this program more than 20 years ago and have always placed students into that surplus lines market. So yes, while insurance might look boring, it’s never boring in the surplus lines market, and that’s where our students at TROY tend to go.”

For the risk management professional, one of the most significant differences between the standard and surplus lines insurance markets is the amount of information readily available to underwriters to provide quotes for policies. While the standard insurance industry has access to vast amounts of anonymized data to automate the process of selling auto, home, health, and life policies, the surplus lines market requires much more human input to calculate.

“A lot of people don’t realize that insurance at this scale involves so many different parties,” says Dr. Baggett. “I had an intern this summer who was looking at the oil industry’s distribution networks. She was working with engineers and people who had detailed knowledge about the oil industry. The risk manager’s job is really to pull all those people together and get the information you need to figure out a plan about how we can manage the risk.”

Dr. Baggett explains that the success of the surplus lines market relies on the experience of underwriters who pass their knowledge on to the next generation of underwriters.

“There’s definitely an apprenticeship component of underwriting at this level,” says Dr. Baggett. “It’s as much an art as it is a science, where the skills and knowledge are passed from generation to generation.”

This doesn’t mean that the surplus lines market isn’t embracing new technologies.

“Risk modeling, especially catastrophic risk modeling, is an increasingly important technological component of risk management,” says Dr. Baggett. “It is really neat. You put in an address, you see a map, and it runs all these simulations that ultimately tell the underwriter what premium you need to get on this property for earthquake, for flood, for wind and other extreme weather events.”

Ensuring the Not-So-Common Risks: COVID-19, Risk Management and Insurance

“Who would have thought we were about to get hit by a pandemic that lasts 20 months and counting?” says Dr. Baggett. “Well, a risk manager would have thought about that, and after they had identified everything that could have gone wrong in such a scenario, they could have figured out how to manage it.”

Dr. Baggett believes many organizations underestimated the risk a pandemic posed to their businesses. She explains that there is nothing new about pandemic insurance, but unfortunately, not many people purchased it.

“Before COVID, I would have said, ‘No way, it’s not worth the cost,’” says Dr. Baggett. “Part of risk management is you can treat risk to death. You can just spend and spend and spend on mitigating, but at the end of the day, you are working for a business that is out to make a profit. So, any insurance has to be worth the mitigation expense.”

One major event did realize the value of pandemic insurance  — the annual Wimbledon tennis tournament. Following the outbreak of SARS in 2003, the risk of a global pandemic became a top-of-mind concern for the event organizers.

“The All England Lawn Tennis Association, the organizers of Wimbledon, had been paying about $2 million a year in pandemic insurance for the last 17 years,” says Dr. Baggett. “ As a result, they recouped over $100 million of their losses associated with canceling the tournament during the coronavirus pandemic. So, is it worth it? It was for Wimbledon because they can afford it, but it probably wouldn’t have been feasible for the average business.”

While Wimbledon’s “bet” on pandemic insurance paid off, Dr. Baggett is adamant about maintaining distance between the risk management and insurance industry and gambling.

“Insurance can sometimes be compared to gambling by some people,” says Dr. Baggett. “The argument against that is that you never profit from insurance unless you are committing fraud. If I’m gambling, I could lose, I could break even, or I could profit. If I’m purchasing insurance, it’s neutral: I want to avoid a loss or break-even — I’m never actually in a better position financially than before I had a loss.”

The Importance of Soft Skills in Insurance and Risk Management

Dr. Baggett highlights several different career options available to graduates of the risk management and insurance program at TROY.

“You can work in sales, you can work as an underwriter or as someone in claims,” says Dr. Baggett. “But there are so many other paths you can follow. For example, I recently had a student who was training to operate drones for crop insurance. They would take the drones out and see how much damage had been done to the crops.”

Regardless of the path a graduate chooses, Dr. Baggett is keen to highlight the importance of soft skills in the risk management and insurance industry, something the TROY program, an AACSB-accredited program in the Sorrell College of Business emphasizes.

“This is a program that puts the most premium on soft skills,” says Dr. Baggett. “It is great when students are really sharp academically because that helps us get them great placements. But the industry also values students who are perhaps academically average but have great soft skills, work well in teams, and are curious by nature.”

Dr. Baggett describes her more social students as “classic insurance brokers and salespeople.”

“This is a job where you will have to be comfortable with the people side of the business,” says Dr. Baggett. “We end up with a lot of very social students, and the industry definitely has a home for them.”

Dr. Baggett believes that if a student possesses the relevant soft skills, she can teach them everything else they need to succeed in the field.

“I’m confident that I could teach any hard-working student what they need to know about the insurance industry,” says Dr. Baggett. “However, it’s much harder to teach someone to ask questions and to be curious.”

While Dr. Baggett isn’t necessarily looking for a 4.0 GPA, she is looking for a student who is genuinely engaged.

“I need them to want to know how things work,” says Dr. Baggett. “They need to be inquisitive in the insurance industry because, regardless of where you fit in that field, you really need to understand the nature of the risks that you are taking.”

The ROI of Education

Dr. Baggett recognizes that at a time when some parents and students are questioning the value of higher education, the TROY program needs to prove its return on investment.

“If I were a parent sending a child to college, I would be asking one question: ‘Where are they going to have a job?’” says Dr. Baggett. “This program can answer that question better than most. Most of our students are coming to the program straight out of high school. It takes a lot of out-of-class attention to get students to the point where the industry takes notice and invests in them as people.”

As a recent graduate of the risk management and insurance program, Ellie Norton believes her experience at TROY set her up for her first job as a junior broker.

“Graduating from a risk management and insurance program helped to set me apart from other candidates for my job,” says Norton. “When you come from an industry-specific program like TROY’s, employers take note of the fact that you have, at the bare minimum, a general understanding of operations within the insurance industry. However, the TROY program does not stop at the bare minimum.”

Norton took the skills she learned in the classroom and directly put them to work. “The two classes that I found the most helpful for what I do specifically are Property & Casualty, and Surplus Lines,” she says. “The terminology alone from those classes is the main reason that I could understand the basics of what was going on when I started my job. I use the terminology and basic information from both of those classes every day.”

The return on investment in education is key for both parents and students. Understanding where their degree will take them is especially a priority for many students who are paying for their own education.

“Many of our students here are funding their own education,” says Dr. Baggett. “They may have some financial aid or some scholarships, but many do not have access to financial support from their parents. It’s important that we do as much as we can to make sure that the students are not only having a good experience while they are in college but that we are also putting them on the path to being financially independent, successful adults.”

Norton highlights how her professors encouraged and mentored her to make the most out of her college experience. She also built solid friendships and remained in regular contact with her cohort after graduation.

“Being surrounded by the right people can do wonders for helping you achieve your goals,” says Norton.

Internships and Networking Opportunities

Dr. Baggett highlights the importance the TROY program places on internships — at TROY, they are often the first step to employment.

“Eighty-five percent of our graduates complete at least one internship while they are here,” says Dr. Baggett. “Many of them do multiple internships, and they are all paid. That often leads to full-time placement even a year before they graduate, so we strongly encourage that internship experience throughout the program.”

Due to the ongoing talent shortage, Dr. Baggett has no problem placing students with companies.

“My biggest problem right now is I have more companies looking for students than I have students seeking companies,” says Dr. Baggett.

Students are also taught the value of networking in the program.

“I’m taking students to Ohio next month,” says Dr. Baggett. “They have gone to Seattle, to Boston, and all over the place. Through generous donations of industry partners and alumni, we can cover these costs. Our students have a lot of exposure to making connections very early in the program, and those connections also help them find internships and jobs.”

Norton found the career focus of the TROY program to be key when it came to employment. “Another aspect that I found particularly helpful was the RMI career fair and numerous networking events that the school sponsors,” she says. “Those events are helpful for not only finding jobs but also meeting people that will be your peers after graduation.”

Norton advises prospective students in the program to “ask questions and soak up as much information as you can.” She also reinforces the importance of developing your social skills.

“One of the main requirements of a broker, and really anyone else in the industry, is the ability to communicate with other individuals clearly,” says Norton. “The classroom is a perfect setting to hone your communication skills before it is necessary to use them on the job.”

The Risk Management Recruitment Crisis

The risk management industry is not immune to risk itself. According to Dr. Baggett, the most significant risk the industry is currently facing is the ongoing recruitment crisis.

“It was estimated that there were 400,000 vacant positions in the insurance industry last year,” says Dr. Baggett. “People are delaying retirement to fill the void, but the industry is seeing big gaps in their talent pool.”

This crisis creates significant opportunities for anyone interested in working in the industry.

“Younger professionals are advancing so much faster than they ever would in the past,” says Dr. Baggett. “We’ve seen students leave this program and in less than five years advance to the position of senior underwriters. It used to take a lot longer to pay your dues and wait for someone else to retire for these opportunities to open up.”

The talent crisis also forces insurance companies to be much more generous in terms of salary and other benefits.

“As a young professional in the insurance industry, you’ll find yourself very marketable,” says Dr. Baggett. “I’ve had many graduates start out at more than $70,000 a year. For any four-year undergraduate program, I think that’s very impressive. It just goes to show that the risk management and insurance industry offers a really fun career path, with a lot of upward mobility.”

Learn More TROY’S program is an AACSB-accredited BSBA and part of the Sorrell College of Business. To learn more about launching your career in the risk management and insurance industry, visit the Bachelor of Science in Business Administration with a concentration in Risk Management and Insurance page on our website.