global risk management | Risk Management Monitor

Risk management is maturing and is playing a larger role in insurance companies, both strategically and with their compliance objectives.

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As a result, the key task for chief risk officers is to help their company achieve balance between upstream and downstream activities, according to Accenture’s 2015 Global Risk Management Study of risk management in the insurance sector.

“Neither an unfettered approach to growth, nor an excessive focus on compliance, will deliver the desired outcomes.

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Instead, the risk function should steer a course between an informed, connected risk agenda, and the need for a sustainable and innovative strategic business direction,” the survey found.

While organizations mostly agree that risk management has helped their long-term business growth (85%), a large number believe that silos of business functions are hindering the effectiveness of their risk management programs.

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According to the report, because of the continuing low interest rate environment, which creates pressure on margins and returns, insurers are looking into other areas for growth, making it “increasingly urgent for the risk function to become more engaged in the evolution and reinvention of the business in order to anticipate and steer clear of competitive threats.”

To do this, respondents to the study are:

Working to understand what the new environment implies for both the risk management function and the business – and whether CROs and their teams currently have what they need to meet the requirements

Seeking to identify areas where there is a gap to be closed, with priorities that include:

Getting to grips with digital

Strengthening data and analytics capabilities

Developing operational risk management in a more systematic way to turn it into an enabler of sustainable, profitable growth

Ramping up the focus on recruitment and retention

Building a more consistent risk culture at all corporate levels.

The study also found that digital is playing an important role in growth:

Global insurers’ level of satisfaction with their enterprise risk management (ERM) performance grew by 10 percentage points over the last two years (63% compared to 53%). This was highlighted by a 16-percentage-point increase in Asia Pacific (51% compared to 35%) and less pronounced in North America and Europe (with a seven-point increase), according to Towers Watson’s Eighth Biennial Global Enterprise Risk Management Survey.

According to the survey, 74% of global insurers said their executives and board members view the risk management function of their enterprise as an important strategic partner that adds value to the business. Notably, carriers that share this view are almost twice as likely to say they’re satisfied (73% compared to 38%) with their company’s ERM performance compared to those that believe ERM is merely a provider of risk assurance (18%) or for regulatory compliance (8%).

Insurers’ opinions of their ERM program were determined by factors such as clear links to business goals. In fact, carriers with ERM functions that are well integrated into their business planning noted higher rates of satisfaction (82%) than those without an integrated strategic plan (53%). Similarly, those with a risk appetite framework linked to specific risk limits expressed higher rates of satisfaction (76%) than their peers with no framework in place (50%).

“Companies that strive for strategic value in their risk management function — as opposed to simply using ERM for regulatory compliance — typically differentiate themselves, in part, by integrating risk management into their strategic decision-making process from the beginning,” Martha Winslow, senior consultant of the Americas P&C practice with Towers Watson, said in a statement. “Too often, senior management incorporates risk management later in the process or even after it is complete, when there’s not much chance of it influencing critical decisions.”

Towers Watson survey findings: