New York — New research shows that enterprise risk initiatives are becoming increasing established at insurance companies. Of the 53 insurers queried by New York-based PricewaterhouseCoopers in the second half of 2007 and first quarter of 2008, 90% have ERM programs in place.
Moreover, ERM is viewed a board priority across the industry, as 40% of respondents say their firm has a board-level ERM committee, and nearly one-quarter are considering establishing one. The study also found that the role of chief risk officer (CRO) is gaining in stature. In about 60% of firms, the CRO communicates directly with the board on at least some risk management issues.
Despite its progress in the boardroom, enterprisewide understanding of ERM typically remains limited, the study finds. This lack of understanding potentially undermines its actual use in business, the authors say. Underlying this, the survey found a gap between the alignment of risk appetite and key business decisions, as fewer than half of respondents are confident that ERM is genuinely embedded in their firm’s strategic planning, resource allocation and performance management functions.
More ominously, many respondents also recognized their risk and data systems are insufficient. According to the survey, fewer than 40% of respondents believe their firm's risk data and systems are “good” or “excellent”.
Due to this, the study finds that many participants are still finding it difficult to monitor and manage emerging risks. Similarly, fewer respondents appear to be using their ERM knowledge to identify and capitalize on unfolding opportunities, rather than simply mitigating their exposures.
The study concludes that insurers are cognizant of the need for further development of their ERM programs. However, it states that effective ERM cannot be imposed from the top, and for it to make an impact enterprisewide, business lines need to believe that ERM can help them to make more informed decisions.
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