With ratings organizations integrating enterprise risk management (ERM) into their credit assessment determinations, sound ERM practices are becoming fundamental to the financial well-being and strategic competitive position of insurers. But ERM is more than just inculcating risk management consciousness or procedures throughout an organization. In the short term, it means implementing best practices within insurers' lines of business and across their organization. In the long term, it means systematically reengineering every business process that supports an ERM program, from strategic planning to sales and marketing, from operations to customer service.
Fundamental risk management processes have existed for ages, but new technologies in areas such as data management and location intelligence now make it possible to significantly expand its scope. By improving the quality of their data - and then giving it greater weight by utilizing related geographical information - insurers can use ERM tools to identify, quantify and manage risk on a more holistic basis.
Insurers contemplating the implementation of an ERM platform face some immediate challenges. How can they get the clearest, most accurate view of risk across their organization? From an IT perspective, how can they overcome siloed lines of business and systems to possess a truly integrated means of managing enterprisewide risk?
It all begins with data. An organization must come to terms with its many reservoirs of information and ensure that communication processes are keeping pace with IT infrastructure. It must move toward an ethos of integrated information and services, recasting different departments as a true single "enterprise" rather than a series of disconnected silos.
This requires the development and deployment of solutions that can integrate information, and make it accessible to all relevant parties so they can leverage this data to better assess and manage risk. This transformation, however, does not require the organization to scrap its existing IT infrastructure, but merely integrate previously isolated parts into one true whole.
THE GUTS: KEY ERM TECHNOLOGIES
A well-constructed software solution can help insurers address ERM in three key technology areas: data quality/data management, location intelligence and communication management.
Data quality software can help insurers manage all their information, capturing it accurately and completely in a timely manner, and in a consistent format. It also includes profiling, which ensures that data conforms to specified types of content.
Once an insurer's data has been cleansed, it can use location intelligence tools to add a geographical component to the mix. Location intelligence can help determine the most precise latitude-and-longitude position of properties, but its value goes beyond that. It offers organizations a clearer understanding of customer and market information, giving them an enhanced ability to gauge risk appetite. It can also help optimize location-based assets, people and property, sales management and customer service, and IT infrastructure deployment.
Communication management solutions help insurers integrate multiple channels, thereby improving and accelerating internal and external customer communications. They can also help satisfy complex compliance requirements, accurately address jurisdiction-related issues, enhance communications security, enforce uniform standards for critical documents and digital communication, and reduce operational complexity.
The aforementioned technologies can work together to build an ERM platform for an organization, supporting business objectives in four key categories identified by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission, Altamonte Springs, Fla.
1. Strategic: By making ERM a part of strategic planning and business development activities, an insurer can gain a clear understanding of risk from an enterprise perspective and define risk appetite.
2. Operations: A strong ERM platform helps organizations make more effective and efficient use of their resources. By integrating strong risk-management practices into core operating processes, an insurer can create a positive impact in areas such as underwriting, claims management, real-time line limit management, policy production, customer service, explanations of benefits, IT management and vendor management.
3. Reporting: Now more than ever, massive amounts of data must be aggregated into reports. Data integration and communication management can help aggregate data, enabling secure access to and archiving of information.
4. Compliance: ERM technologies are critical to an insurer's ability to combat fraud, deliver critical communications and conform to legal frameworks and regulatory requirements.
Bill Sinn is strategic industry & marketing director at Troy, N.Y.-based Pitney Bowes Business Insight.
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