Global insurers’ satisfaction with ERM performance grew by 10% over the last two years: Towers Watson

Global insurers’ satisfaction level with their enterprise risk management performance grew by 10 percentage points over the last two years, according to a survey released on Tuesday by global professional services company Towers Watson.

The 10 percentage point increase was highlighted by a 16-percentage-point increase in Asia Pacific (51% vs. 35%), though it was less pronounced in North America and Europe (with a seven-point increase), said the Eighth Biennial Global Enterprise Risk Management Survey.

Nearly three-quarters (74%) of global insurers say that their executives and board members view the risk management function of their enterprise as an important strategic partner that adds value to the business. Notably, the survey found, carriers that share this view are almost twice as likely to say they’re satisfied (73% vs. 38%) with their company’s enterprise risk management (ERM) performance compared to those that deem ERM as merely a provider of risk assurance (18%) or for regulatory compliance (8%).

Insurers’ opinions of their ERM program hinged on certain factors, such as clear links to business goals. In fact, carriers whose ERM function is well integrated into their business planning noted higher rates of satisfaction (82%) than those without an integrated strategic plan (53%). Similarly, those with a risk appetite framework linked to specific risk limits expressed higher rates of satisfaction (76%) than their peers with no framework in place (50%).

“Companies that strive for strategic value in their risk management function — as opposed to simply using ERM for regulatory compliance — typically differentiate themselves, in part, by integrating risk management into their strategic decision-making process from the beginning,” said Martha Winslow, senior consultant, Americas P&C practice with Towers Watson, in a press release. “Too often, senior management incorporates risk management later in the process or even after it’s complete, when there’s not much chance of it influencing critical decisions.”

The survey demonstrated that regulatory requirements have played a key role over the last two years concerning how insurers approach their ERM. Over three-fifths (61%) of participants said it’s been the leading key driver of change, and this was especially true in Asia Pacific (72%) and Europe (63%) but less so in North America (47%). They also conveyed that their senior management teams and boards of directors have a strong interest for an improved ERM program to support good business practices (59%), as this ranked as the next most important catalyst for change.

Challenges around regulatory-related issues (46%) slightly edged out people challenges (45%) as the top obstacle insurers expect to face for ERM implementation over the next year. Most U.S. participants (82%) expect changes in the regulatory system to have little or no impact on their capital requirements, although they do expect new regulations to trigger other changes in their business, such as an adjustment in the relative attractiveness of products (36%), higher prices (31%) and the need for capital raising (23%).

Almost four-fifths (78%) of respondents estimated that the ultimate vision for their company’s ERM capabilities has increased over the past two years, and they cited risk culture (78%) and risk tolerance (76%) as the most important aspects of this ultimate vision. Pointedly, since the last survey, participants showed they’ve made progress toward reaching this end vision for every aspect of their ERM program, with the most headway gained in risk monitoring (75% vs. 59%) and risk tolerance (71% vs. 57%).

European insurers made more strides integrating ERM across most areas of their business compared to their North American and Asia Pacific peers. Insurers in Europe have ably integrated ERM into their capital adequacy assessment (70%) at a greater rate than their North American (51%) and Asia Pacific (45%) counterparts. This also holds true for progress in the mergers, acquisitions and divestitures (54%) segment of their operations, as well as business planning (59%), where North American (36% and 34%, respectively) and Asia Pacific (26% and 27%, respectively) insurers have lagged in those areas of ERM integration by comparison.

Towers Watson’s eighth biennial survey on insurance ERM asked senior executives in major insurance companies around the world about the approaches to, and current status of, ERM activity within their companies. Nearly 400 respondents were surveyed.