Canadian Underwriter

Insurers have “long way to go” on risk and capital management

November 14, 2003   by Canadian Underwriter

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Global insurers are lagging in the implementation of programs to management risk and capital within their own organizations, according to a new study by Ernst & Young LLP.
The “risk management and capital management survey” shows that 65% of insurers are only half-way through implementing holistic risk and capital management frameworks in their companies, challenged by automation (73%), resources (63%) and cultural acceptance or “buy-in” (43%). Only 25% of insurers have a chief risk officer, with that position generally reporting to the chief financial officer, rather than the CEO-level.
This is despite a full 90% saying that the benefits of a sophisticated risk and capital management program are worth the cost. Overwhelmingly insurers cite the awareness of risk across the organization as a key benefit of a holistic program. Other pluses include discipline in product development and pricing, decision-making benefits, and understanding aggregate risk exposure across the company.
Among the goals of risk/capital management programs are communication with rating agencies and operational improvements.
“Current trends including business consolidation, globalization, scarce capital and more complex insurance products have created a new risk environment,” says Thomas Conway of Ernst & Young’s insurance & advisory services practice. “Integrating risk into operating strategies and bridging the risk silos is no longer an option, but an imperative for survival. This will require a more sophisticated measurement approach and a commitment to fully understanding the risks they are assuming.”

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