Chief risk officers in the insurance industry have tended to lag behind their banking counterparts in organizational prominence, but that is changing, according to a survey of 19 chief risk officers by New York-based consultancy Ernst & Young (E&Y).
Half of those surveyed expect more direct involvement with their boards over the next three to five years, and the same amount report that their staffs have grown over the past year. Driving this increased focus on risks are technological advances that are changing the insurance industry, according to E&Y.
"Even marketing and branding efforts carry higher risks than previously, given that social media and consumer empowerment mean every interaction that goes awry can turn into a highly visible (and potentially costly) media event," says Bill Spinard, executive director of Ernst & Young's FSO Insurance Risk practice. "In other words, insurers are coming to terms with the presence of risk across their operations and seeking to define the right strategies and tactics to manage it properly."
In addition, insurers are more aware of the risks across the enterprise due to adoption of big data and analytics tools on a wide scale. E&Y refers to this trend as "risk quantification." This means risk management is more closely intertwined with performance and overall business management to get a clearer picture of product profitability, growth opportunities and future revenue so insurers can be assured that they have adequate economic capital. E&Y explains that:
The trend toward risk quantification is being driven, to an extent, by the big data and analytics revolution in the industry. Forward-looking firms now view their massive data assets as a source of valuable insights about their customers, competitors and the market. The same powerful tools and sophisticated processes that can be used to identify and target special offers to policyholders at the greatest risk of non-renewal can be used to quantify risk down to granular levels at the business-unit, product line and overall enterprise level.