Given insurers' apprehension about the uncertain state of the global economy, it stands to reason that their enterprise risk management (ERM) programs have become more important than ever. They're awareness of the need to manage and leverage risk has never been higher.
Recognizing this, Chicago-based insurance brokerage Aon Corp. conducted an online survey in Q3 of 2009 that polled more than 200 principal risk managers, CROs, CFOs, treasurers and others about their insurance and risk management choices, interests and concerns. The result— Aon's "2010 Global Enterprise Risk Management Survey"— is designed to illustrate the extent to which ERM has been successfully implemented by organizations around the world.
After sifting through the responses, Aon determined there were nine key features of an advanced ERM program. These qualities are central to a program's effectiveness in creating value for its organization, regardless of company size, industry, sector or region, claims the insurer.
The survey results uncovered how organizations view themselves against Aon's five-stage ERM maturity model. This model defines a firm's ERM program implementation level on a scale ranging from "initial/lacking" and "basic" at the low end to "defined" for average maturity and "operational" and "advanced" for those at more sophisticated stages.
Only 7% of those professionals surveyed rated themselves at the advanced level, while 55% reported ERM implementation at the defined or operational levels, meaning that they have policies and techniques in place to identify, measure, monitor and manage some risk components; this represents a 20 point increase over the 2007 level (the last time the survey was conducted). Thirty-five percent of organizations categorized the maturity of their ERM programs as initial/lacking and basic. Consequently, the survey found that 93% of organizations now have the opportunity to increase the impact of their ERM programs.
Respondents indicated that the primary drivers for investment in ERM are improving governance and transparency, adopting best practices, and improving performance and decision-making. The number of organizations seeking improved performance and decision-making with ERM has risen dramatically since the 2007 survey.
"The ERM journey is organic in nature and unique for each organization; it cannot be completed with a cookie-cutter approach," said Laura Taylor, global leader of ERM for Aon Global Risk Consulting. "The objective is to have ERM rooted in an organization's culture, management processes and strategy to enhance risk-based decision making and add to their continuity and profitability."
The resulting data uncovered nine hallmarks of top-performing enterprise risk management programs:
1. Board-level commitment to ERM as a critical framework for successful decision making and driving value
2. Dedicated risk executive in a senior-level position, driving and facilitating the ERM process
3. ERM culture that encourages full engagement and accountability at all levels of the organization
4. Engagement of stakeholders in risk management strategy development and policy setting
5. Transparency of risk communication
6. Integration of financial and operational risk information into decision making
7. Use of sophisticated quantification methods to understand risk and demonstrate added value through risk management
8. Identification of new and emerging risks using internal data as well as information from external providers
9. A move from focusing on risk avoidance and mitigation to leveraging risk and risk management options that extract value
In the end, Aon was encouraged by the ability of organizations in the more mature stages of ERM to drive significant value through ERM in areas such as enhancing shareholder value, optimizing/reducing total cost of risk, strengthening business resiliency and increasing operational efficiency. This is promising, the insurer says, in light of the financial challenges that many of the organizations have faced since the last survey.
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