Our 2015 Risk Management Study shows that risk management in the insurance industry is becoming more balanced and mature in its outlook. While the emphasis on regulatory compliance remains, particularly in Europe, there is a shift toward a more growth-oriented, strategic perspective.
With pressure on margins and returns in traditional business lines intensifying, particularly as markets continue to provide limited returns, insurers are looking elsewhere for growth. New business models are emerging and many insurers are already feeling the threat of digital disruption.
In mature insurance markets, delivering strong growth objectives means taking on greater risks. This, in turn, triggers difficult decisions on complex risk/return trade-offs. As a result, insurers are implementing specific control activities to help provide a controlled and secure path for growth.
The risk function cannot stand on the sidelines of this transition: CROs are encouraged to play an active role in assessing the opportunities and threats of the shift. Here are some interesting revelations from our study in this regard:
More risk appetite: A large minority of insurance respondents reports a greater risk appetite for key strategic actions compared with two years ago. For example, 44 percent have a greater appetite for new product development and 43 percent for alliances and partnerships.
A partner rather than an impediment: Insurance company CROs are working hard to position risk management as a strategic business partner, rather than as a function that might impede the ability of other parts of the business to exploit new opportunities.
Almost eight in 10 insurance respondents (78 percent) say that the CRO is either a key decision-maker, or among the decision-makers, for strategic planning, while 73 percent say the same about business model change.
Gaining ROI from compliance investments: Seven in 10 surveyed insurers say that the cost of complying with Solvency II regulations has been higher than expected; one-third has spent more than US$50m. They are now more actively looking for greater returns on their investment, with the risk function striving for greater efficiency and effectiveness in the compliance process.
More visible and mature risk management: Solvency II has led to increased visibility for the CRO at a strategic level with the executives and board. Some 85 percent of insurance respondents say that risk management now contributes either to a great extent or to some extent to enabling long-term profitable growth of the business.
In the next post in this series, I’ll examine the priorities for risk officers at insurers.