Having derisked balance sheets to desired levels in 2013, and with investments performing as expected, chief risk officers now are able to invest more time and energy on the effectiveness of enterprise risk management, and many now are seeking to embed more data-driven and analytics-based practices within their operations, according to “Increasing Authority And Higher Organizational Profiles 2014 Insurance CRO Survey,” from Ernst & Young, a management consulting company.
“The elevated importance of doing things right’ has led to greater focus on operationalizing ERM by embedding it into the business, creating a more direct role for risk management in the overall management of the business and creating a risk management culture.’ The clear trend is toward more sophistication in ERM practices and policies, as well as closer alignment to, and involvement with, the business,” E&Y said.
According to 23 percent of survey participants, which included chief risk officers (CRO) and senior risk executives from more than 20 North American insurance companies, CROs’ most important accomplishment in 2013 was enterprise risk management.
Last year, insurers established core risk-management capabilities, particularly in the areas of ERM and economic capital; now, they are focusing on making core processes and tools work better, E&Y said, by embedding analytical capabilities within the business, which serves as the first line of defense when it comes to risk management.
“There is clear and increasing recognition that, when done correctly, a risk appetite framework with detailed tolerances and limits at the corporate and business-unit levels can be an extremely effective way of communicating and tracking how company strategies,” E&Y said.
Asked where they would increase their attention compared to last year, 16 percent said ERM, which was second only to “other/operational risks,” according to the survey.
Ongoing preparations for Own Risk and Solvency Assessment (ORSA) are a primary motivator for the focus on ERM, E&Y said, and specific compliance concerns have subsided because CROs have “gotten their arms around” ORSA plans.
More than half, 53 percent, said regulation/accounting was the biggest challenge facing the industry; 23 percent said low interest rates and the economy; 12 percent said emerging risk; 6 percent said competition and 6 percent said “other.”
Risk management departments are growing, too. According to the survey, 37 percent said their departments increased compared to last year, 58 percent said they were the same size and 5 percent said they decreased.
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“More than a third expect their staffing levels to increase over the next year,” E&Y said. “However, as CRO responsibilities evolve, the skills composition of their staff will change and likely expand,” E&Y said. Insurers likely will acquire more capabilities in risk quantification, model governance, stress testing and change management to address concerns over pending regulations.
“Overall, the results make clear that the ongoing risk journey’ has entered an important new phase and that CROs will continue to have a seat at the table as their specific agendas and charters evolve along with the industry,” E&Y said.
