Most managers treat risk management as a series of unrelated tasks best delegated to specialized experts. If a company needs to insure its plant and equipment, an insurance team in the treasury department runs the numbers and negotiates a contract. If it starts exporting to Japan, another team of foreign exchange specialists will hedge the company’s exposure to currency movements using futures and options.

Yet these two very different tasks share one goal—trying to control the company’s exposure to financial distress. On the face of it, then, unifying the management of a company’s diverse risks would seem a ripe source of efficiency gains and cost savings. But until recently that hasn’t really been a practical option, since no insurers offered coverage for a company’s consolidated risk exposure.

A Brave Pioneer

A few companies have now begun to work with insurers to develop more comprehensive risk-management agreements. And they’re finding that such policies not only save them money but bring wider organizational and strategic benefits as well. One of these is the U.S. engineering giant Honeywell. Through an innovative insurance contract it developed in partnership with its main insurer, American International Group (AIG), Honeywell has successfully integrated its management of several different kinds of risks.

Under this single policy, Honeywell now groups together not only traditionally insurable risks—product liability, property, employee crime, and so on—but also protection against changes in a host of foreign exchange rates. Previously, the insurance risk-management unit in Honeywell’s treasury department had covered each risk under a separate policy, while its derivatives group hedged currency risks through the usual array of forwards, futures, and options.

Bundling the company’s risks like this has enabled Honeywell to cut its overall