Successful ERM Eludes Carriers

Technology remains a significant obstacle to the integration and execution of insurers' enterprise risk management (ERM) strategies, according to PricewaterhouseCoopers' (PwC, New York) study titled "Enterprise-wide Risk Management for the Insurance Industry." The newly released study reports that ERM strategies are a key priority when it comes to gaining competitive advantage for insurers, but that many organizations need to close the gap between the design and planning stages and the actual execution of these programs.

Although just 8 percent of the 44 North American, Asian and European insurance companies surveyed for the study reported being "very satisfied" with the technologies that their firms currently use for risk management, low satisfaction rates aren't necessarily indicative of a negative situation. "Companies are not willing to spend a lot on technology without a clear view of their overall program," reports Paul Horgan, partner, PwC. "I would look at the glass as being half full, because carriers want to make sure that they [implement technology] the right way. This shows that they are pausing [before] jumping into ERM programs too quickly."

Despite efforts by insurers to develop ERM strategies over the last decade, the discipline is still considered to be an immature one, reports Horgan. "A large amount of knowledge is lacking when it comes to sustainable ERM implementation strategies," he asserts. This may have something to do with the fact that natural catastrophes, terrorism and accounting scandals have only recently served as wake-up calls for carriers to get their ERM acts together. But, although ERM strategies haven't been top priorities for insurance IT leaders in the past, that is not to say that risk managers are completely befuddled when it comes to best practices for ERM implementations. PwC's study shows a consensus among carriers surveyed as to how to achieve an effective ERM integration.

The consultancy notes that a majority of insurance respondents agree that an ERM framework should align the key fundamentals of governance and organization; standards and policies; risk measurement methodologies; and systems and tools. Additionally, respondents related that ERM success factors are dependant upon the involvement of the board and a centralized ERM organizational function. Although 57 percent of respondents had chief risk officers reporting risk issues to the board on a regular basis, only 6 percent were able to confirm that their companies have data aggregation capabilities across all risks and business units.

New Reporting Standards

In the face of new reporting standards, PwC warns that carriers must improve their data management strategies. The consultancy advises carriers to invest in centralized databases capable of integrating risk and financial data, along with the event and holdings data required to affect continuous compliance monitoring. Success in creating these capabilities requires careful planning and design, which can be performed only by IT professionals with expertise in process integration and risk analytics, according to PwC. But carriers must first make the search for qualified talent a priority.

A sizeable 57 percent of the study's participants reported that recruiting risk IT personnel is a low priority, and 43 percent felt that the design of risk IT infrastructure is also a low priority. Given this information, it's no surprise that almost a quarter of the study's respondents rate their systems strategies for risk management as poor, and nearly as many negatively rate their data strategies.

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IT Risk Priorities

In order to achieve ERM success, insurers' priorities should shift.

Although 57 percent of carriers surveyed ranked recruiting risk IT personnel as a low priority and 43 percent felt that risk IT infrastructure is also a low priority, PwC stresses that the right people and architecture must be in place to ensure valuable risk and compliance analytics.

Source: PricewaterhouseCoopers Global ERM Survey