In our 2015 Global Risk Management Study we found that many insurers are focusing increasingly on operational risk, particularly in areas where new technologies are evolving rapidly, such as digital, big data and social media. Among insurance respondents, 79 percent expect digital to be a major form of risk and 74 percent expect cyber and IT risks will increase in severity over the next two years.
As the risks grow and the business environment becomes more complex, more uncertain and more regulated, operational risk management can:
- Provide a needed perspective on increasing performance.
- Be an effective tool to define, develop and protect new capabilities required in the search for growth.
- Help deliver business advantages in adapting tools and controls for digital transformation.
Concentrating operational risk resources on these emerging business areas makes sense—more established lines already have built-in risk mitigation from the longstanding experience, relationships and processes that are in place, whereas digital, big data and social media do not yet have built-in risk management mechanisms. According to a study commissioned by the Financial Executives Research Foundation, almost three-quarters of company executives (71 percent) believe social media risks could be mitigated or avoided, yet 59 percent had no social media risk assessment plan in place.
As well as operational risk management, insurers should consider investing in a strong and consistent risk culture that can withstand disruptive change. Just 7 percent of respondents in our Global Risk Management Study said they have such a culture and that it is widely understood and implemented across the organization—chief risk officers take note.
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