Insurers are increasingly incorporating risk management approaches into pricing, product development and portfolio management. While enhancements in these areas will likely bring greater profitability in the long term, substantial investments will need to be made upfront—investments that wouldn’t be possible without a solid partnership between CFOs and CROs.
The CFO-CRO partnership at work
CFOs and CROs are collaborating on major overhauls of corporate data processes and systems. In fact, our research of 17 global financial firms and 1,400 respondents reveals:
- It is critical finance and risk operate off a common set of data. Differing data sources not only cause delays, but may also become a source of unnecessary conflicts and impair the risk-finance working relationship.
- Use of risk analytics has advanced significantly. In many cases, integration of analytics is, in part, a cost-restructuring initiative given the low profitability environment. The chart below illustrates the current use of risk analytics in insurance:
- Stress testing is a potent force for risk-finance integration. Risk management’s oversight of scenario assumptions can help support the business units in managing their underwriting, reputational and operational risks.
- Capital constraints are making it necessary to coordinate risk and finance input into day-to-day decisions. Regulatory pressures can constrain the viability of some lines of business and can create an impetus for risk-finance coordination around strategy.
In many firms, there is a clear shift towards risk-finance input into strategy. In insurance, this shift is increasingly important. Insurers are faced with balancing the best approach to adding risk, capital requirements, unwanted risk exposures and the board’s appetite for other risks. Achieving such a complex balance requires a sophisticated integration of risk and finance with strategic planning. As a result, future CROs will need to have more business understanding than ever before because they are now helping to steer the business.
Join me next week when I discuss the benefits of a strong CFO-CRO partnership.
To learn more download Rethinking Risk in Financial Institutions: Making the CFO-CRO Partnership Work (PDF; opens in a new window).
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