Insurers wanting to reap the benefits of faster, more accurate data reporting, more seamless compliance with regulations and better capital management, are integrating their risk and finance functions. And while the benefits can be hard to pass up, insurers are quickly learning that this move could be a necessity for survival in the “new normal.”
In surveying global financial firms worldwide, four salient findings emerged among the benefits of a strong CFO-CRO partnership:
Improvement in risk-adjusted returns
Financial sector firms with highly integrated risk-finance functions are likely to experience performance-related benefits. The chart below reviews the potential benefits resulting from strong performance of the risk function. A highly integrated (hi) tag breaks the survey respondents into companies in which risk and finance are highly integrated, and companies in which risk and finance are not integrated.
Notably, insurance firms show enthusiasm about the impact of risk-finance collaboration on improving risk-adjusted performance measures. Once insurers understand the drivers, then they can start managing them through hedging, risk avoidance or risk mitigation strategies.
Greater competence in risk management
At many firms, risk-finance integration has produced a holistic approach to risk management allowing organizations to actively manage risk on an enterprise-wide basis. Improved, integrated analytical tools have also given some firms greater awareness before an event of the magnitude of loss. These competencies have been used to help inform difficult decisions.
A high standard of process cooperation can lead to accurate messages regarding underlying risks to the business. An effective CFO-CRO partnership may also the limit the number of issues of secondary importance that must be escalated to board level.
Greater ability to attract and retain top talent
Insurers that integrate risk-finance functions are able to offer their people a more diversified career development program. In addition, with more integrated talent comes greater staff effectiveness.
Based on the above benefits, the argument for risk-finance integration can seem like an easy choice. However, the topic of risk-finance integration is complex—even sensitive—at times at many organizations. Next week, I’ll conclude this series by looking at the six lessons learned for enhancing the 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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