Anthony Hilton says companies have long since dispensed with in-house risk assessment which leaves the field wide open for brokers to offer their expertise

It is impossible to talk to a serious businessman these days without him telling you how much his world has changed in the last five years. We may not all yet realise it but we are living through a new industrial revolution.

Two hundred years ago the agricultural labourers of Shropshire, Yorkshire and the other farming counties migrated to the new urban centres of Birmingham, Leeds and Manchester and gave us the first industrial revolution.

Now the agricultural hordes of China are migrating to their new cities and having the same effect, but on a global not a local scale.

Wages round the world are depressed by competition from China and its surge to become the workshop of the world.

Cheap labour automatically means relatively high returns to the other factors of production, most notably capital and thus the world is awash with money.

Not only has that money changed the nature of the capital markets – the private equity explosion being just one high profile manifestation of it – but, as a result of these new relationships and new pressures, there is not a serious business round the world which has not had to reconsider its supply chain, and more often than not to change its business model.

The supply chain changes alone has brought a whole spectrum of risk which companies have never had to consider before.

Who would have thought, for example, that the makers of Worcestershire Sauce in Bury St Edmunds would get forced into a product

recall because of a problem with chilli powders sourced somewhere in India?

Or that when Katrina hit the Gulf of Mexico, one company would lose no fewer than nine tankers? Or that the first serious UK outbreak of avian flu would appear to have come by road from Hungary?

Or even that Tesco and Morrisons would get caught by selling petrol that appears in some way to have been contaminated?

These and other such cases highlight how risk has changed, becoming at once more unusual and more costly. Hence the response at board level has been to look for a director of risk assessment, or someone of that ilk, to sit alongside the lawyers, investment bankers and management consultants as key advisers to boards and chief executives.

The buying of insurance in companies was traditionally treated as a function, located somewhere in the finance director's domain.

The modern nature of risk assessment is something altogether bigger and broader – understanding the risks which cannot be insured as much as finding cover for those which can. The decisions on how to address risk, of which buying insurance is a part, is now a board issue not a function.

But it is not easy. In this lean, mean and de-layered world, companies rarely have vast repositories of expertise.They have dispensed with those teams of middle management who used to spend their days mapping out scenarios, indulging in game theory and planning strategies. Now it has all been outsourced to management consultants, investment bankers, accountants and lawyers, who are called in when needed on a project by project basis.

Now of course the companies want risk consultants, a new breed to meet their new need. But they do not have the talent internally to be mobilised for this purpose, so again they are looking outside.

The call could not have come at a better time for the big insurance brokers reeling as some of them were from the blitz by Spitzer three years ago. In many cases that took a huge bite out of their business model by questioning the principle and opaqueness of contingent commissions – rebates paid by companies to brokers in return for business directed to them.

Thus it is that chief executive of Marsh, Brian Storms can feature in The Times 'quote of the day' column for saying he cares what his clients think, not what his brokers think.

Consultancy, advising on risk assessment, be it the liability risk of not controlling carbon emissions, to the risk of pensions or poor management derailing a potential private equity takeover and everything else in between is where the business is going.

Broking still matters, but fee-generating consultancy is the fastest growing part, it is the focus of the remuneration and incentive structures and it is where the business is heading because Marsh too is a business which is re-engineering itself.

The interesting issue is how many brokers will follow it down this track, or whether they might even want to.

Marsh, for example, has been known to mobilise its call centres to handle a product recall on behalf of a client.

That is not an option for smaller brokers, but they can learn from the broader change which sees the value shifting from delivering an efficient service to earning fees as a trusted adviser. IT

Anthony Hilton is financial editor of the London Evening Standard