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Global risk management study: Findings for the insurance sector

Read how the current market environment seemingly demands that insurers do more than just comply with new regulatory requirements.

Overview

This report on insurance firms is a sector-specific supplement to the Accenture 2013 Global Risk Management Study. It is based on a quantitative survey of executives from 98 organizations in the insurance industry. Respondents were C-level executives involved in risk management decisions.

Organizations were split among Europe (31 percent), North America (50 percent), Latin America (1 percent), and Asia Pacific (18 percent). Forty-eight percent of the companies had annual revenues between $1 billion and $5 billion, and 52 percent had annual revenues over $5 billion. Respondents included Chief Risk Officers (23 percent), Chief Executive Officers (23 percent), Chief Financial Officers (30 percent), and Chief Compliance Officers (23 percent).

Accenture also conducted in-depth interviews with senior leaders at 15 insurance sector organizations across regions. These provide supporting insights for our data-driven research, while presenting useful perspectives from companies in the sector.

Background

As the 2013 Global Risk Management survey results indicate, the current market environment seemingly demands that insurers do more than just comply with new regulatory requirements. Although an extended timeline for Solvency II may allow insurers with European operations more room for compliance, insurers around the world are also apparently facing greater risk and complexity from regulations targeting Global Systemically Important Insurers.

According to survey respondents, most risks faced by the insurance industry are expected to rise over the next two years. There is a measurable gap between the self-assessed maturity of current capabilities and the future need for strategic risk capabilities, meaning insurers may have their work cut out for them.

To deliver effective risk/return management of the overall portfolio across areas including assets and investments, liabilities and underwriting, and reinsurance to help enable risk adjusted capital allocation across their groups. Group diversification efforts, investment strategies, and reinsurance strategies should be considered as much as local entities’ regulatory capital requirements and accounting rules.

Survey respondents confirm that the integration of risk management into corporate processes (such as budgeting and forecasting, strategic planning, and financing) has made significant progress over the last two years. However, the impact of risk management on operations and steering is much weaker.

Key Findings

Top external pressures are causing insurance firms to integrate risk management into decision-making. The risks executives see rising over the next two years are legal, market, business, strategic, regulatory, underwriting, credit, reputation, operational and emerging.

Risk management is integrated within the following manner:

  • Financing (85 percent)

  • Strategic planning (86 percent)

  • Budgeting and forecasting (89 percent)

  • New product development (54 percent)

  • Performance management (61 percent)

The research has also shown that there is still room for improvement in managing risk in the areas of managing volatility, product development, enabling growth, reducing losses, infusing a risk culture, reputation management and compliance.

Risk management is embedded into core insurance functions of underwriting, reinsurance and financing, risk analysis and corporate strategy and claims and benefits management among survey respondents.

Insurance respondents claim that they still need to address significant issues to achieve compliance with major sector regulatory reform including; 58 percent need to implement an adequate IT architecture, 57 percent need to develop an integrated internal model, 51 percent have to implement a meaningful use test, 43 percent need to document their risk processes and 36 percent their risk governance.

Insurance respondents expect the benefits from enhanced risk management capabilities to go beyond compliance:

  • 65 percent believe internal reporting will improve.

  • 61 percent say public communications will improve.

  • 60 percent see better integration of finance and risk.

  • 61 percent expect better risk-adjusted performance management.

Recommendations

Many surveyed insurers have reported great progress in developing and enhancing their risk management capabilities. They are leveraging the gains from their enhanced risk capabilities to achieve broader business goals. Companies that wish to reach their risk capability goals for 2015 should consider the following actions:

  • Manage compliance through a transformational lens
    Compliance requirements can be used as a lever to transform the risk function. As regulatory requirements escalate, a great deal of investment may be needed. Some insurers develop a long-term plan for the risk function, and manage compliance from a centralized perspective.

  • Develop a risk-adjusted operating model
    Forward-thinking organizations report leveraging the expanded modeling and analytical capabilities of the risk function to achieve broader business goals. They use risk function inputs on an ex ante basis, to improve strategic decision making and operational effectiveness.

  • Treat risk management as a people game
    When addressing issues related to risk, especially those related to risk technology; it is tempting to focus investment on technical solutions.

But there is also an argument to be made for treating risk as a people game. Adding emerging risk expertise to the risk function can help increase the value-added of risk to the rest of the business.