ERM embraced at executive level by insurers, but hasn’t completely filtered down

Despite the endorsement of enterprise risk management (ERM) by executive leaders of North American insurance companies, a full appreciation of ERM hasn’t fully filtered down within their organizations, a PricewaterhouseCoopers study has found.
“Despite progress at the top, the study found that ERM is, in many cases, neither relevant to nor clearly understood by business teams,” the study says. “It is not fully embedded into strategic decisions, and its integration into day-to-day decision-making and frontline risk-taking within many insurance companies remains limited, potentially undermining its ability to deal with a more complex risk environment and more exacting stakeholder expectations.”
PricewaterhouseCoopers’ comprehensive report, ‘Does ERM Matter? Enterprise Risk Management in the Insurance Industry,’ surveyed 53 life and non-life global insurance company executives from North America, Europe, Asia-Pacific and Bermuda.
Fewer than half the survey respondents expressed confidence ERM is embedded in their strategic planning, resource allocation and performance management functions.
“Risk limits often do not reflect enterprise-wide risk appetite,” the study found. “Procedures for monitoring and control are often still orientated around separate risk/business silos, making a portfolio view of risk difficult to sustain.
“While most insurers are at least ‘fairly confident’ (and 44% are ‘very confident’) that they have clearly defined their risk appetite, critically, the alignment of risk appetite and key business decisions is often limited.”
On the plus side, the report found, insurers have made good progress in implementing ERM capabilities.
More than 90% of survey respondents had ERM programs in place and understood them as an opportunity to improve decision-making and increase shareholder value.
“ERM is clearly a boardroom priority across the industry (66% strongly agree and 23% slightly agree), with some 40% of respondents stating that their firm has a board-level ERM committee,” the study found.
“The role of the chief risk officer (CRO) is also gaining in stature, with around 60% of firms saying that their CRO communicates directly with the board on at least some risk management issues.”