Last week, I introduced the opportunities and challenges facing risk organizations. This week, I’d like to talk about the changing role of enterprise risk management (ERM) at many organizations.
Insurers must integrate risk into key business processes
While ERM has generally been focused on achieving compliance and protecting the enterprise, its role has become broader—it’s increasingly tied to strategy, and the focus has shifted to maximizing, not just protecting, value. While insurers are focusing on regulatory requirements, such as Solvency II, many are also looking to redesign their risk management function as a way to enable long-term, profitable growth.
Four considerations for risk management
Under Solvency II, actuarial and risk management functions are high priority, and they go beyond standard activities like risk identification and modeling. Accenture believes this is due to four factors:
- Ongoing market pressure. Given continued economic volatility and uncertainty, insurers are investing in more sophisticated risk analytics tools, focusing on reducing underwriting risk, and improving their ERM function to discover business opportunities.
- Capital markets innovations. New, risky and complex assets require sophisticated risk management methods and tools to help insurers manage exposures and capitalize on opportunities. Examples include mortality bonds, hedge funds and venture capital assets.
- Improved business results through integration of risk and core business processes. The benefits here are three-fold. Across the enterprise, integration can enable insurers to weigh the pros and cons of a risk-taking activity with its economic value. Within core insurance processes, linking risk and pricing with sales can support sales activities, improve segmentation capabilities and enable a more balanced view of business performance. Finally, consistent data management across the enterprise can reduce costs, minimize financial risk and lower required reserves.
- Improved internal and regulatory reporting capabilities. Solvency II compliance will require insurers to collect data and implement processes to comply with qualitative reporting templates (QRT), the Solvency and Financial Condition Report (SFCR) and the Regular Supervisory Report (RSR). Alphabet soup aside, improving risk management capabilities will enable insurers to comply with regulatory requirements as efficiently as possible. It’s not just external reporting that gets a boost; internal reporting capabilities can also benefit.
Next week, I’ll discuss the Accenture Risk-Adjusted Operating Model and how it can help insurers achieve regulatory compliance and get a competitive advantage.
To learn more, download A New Risk-Adjusted Operating Model for the Insurance Industry (pdf; opens in a new window).