In 2017, many risks insurers face are also opportunities. In response, insurance companies are taking a more fluid, progressive approach to risk management.
In a world of ongoing disruption, the stakes are high for insurers’ risk management functions. Interest rates are low, revenue streams are under threat and new competitors are entering from all sides. At the same time, insurers are encountering new obstacles—from regulatory uncertainty to reduced demand among millennials.
We spoke to Eric Jeanne, Accenture’s managing director, Global Finance & Risk Insurance Industry, to find out more about the Accenture 2017 Global Risk Management Study: Insurance Report.
Q: The research indicates the opportunities and threats of digital disruption are weighing heavily on risk leaders at insurance companies. How are insurers responding to the trends?
Starting in 2009, Accenture has conducted research on risk management. Through the years, we have seen the growing influence and importance of risk management—both the practice and the function. Our 2017 report highlights three priorities for insurers’ risk functions: harnessing digital innovation, balancing old and new skills, and integrating across the business.
This year, the headline finding is that the risk of doing nothing could be greater than the risk of taking action—even when the best course is not certain. This is because many of today’s risks are also opportunities. Companies should take steps to make sure they are not left behind as the market grows for specialty services.
Rather than watch disruption happen, insurers should be driving it. They should be investing in new technologies to offer new products and services, build efficiencies, and adapt more dynamically to individual customer behaviors and preferences.
Q: When we think about digital technology and innovation in insurance, they are most often directed towards customer-facing functions like distribution and claims. How are we seeing digital innovation being applied in the back-office?
Innovation is everywhere in insurance, and we often look at robo-advisors, peer-to-peer insurance models and the Internet of Things as examples of how digital technology is changing the business. Yet insurance leaders are also using digital tools to completely transform their risk functions.
For example, 77 percent of our respondents indicated their risk function uses the cloud to address cost pressures. And 66 percent of respondents reported that the use of risk analytics is fully integrated into the risk function’s everyday operations, while 63 percent agreed it is integrated with strategic planning and decision-making.
Use of those technologies has matured greatly in recent years, and now, risk teams are looking to the potential of artificial intelligence (AI), robotic process automation (RPA) and machine learning. Few risk teams have fully exploited these technologies, but many have now begun to explore them.
For instance, just 15 percent of insurance respondents to the 2017 study claim to have highly proficient capabilities in RPA, while another 24 percent are using it in the risk function but are not extracting its full potential. AI has similar figures: 13 percent and 32 percent respectively.
Q: That indicates technology change is becoming the norm for insurers’ risk management teams. Do they have the right skill sets to cater for new digital tools and processes?
Three out of four insurers we spoke to in our 2017 study (75 percent) say their risk management workforce capabilities are effective or very effective at understanding emerging technology risks.
Sixty-eight percent agree they have a cyber risk management function that can effectively support the IT function and accurately report the real status of cyber-risk to the board. Skills will continue to be a challenge, but it is encouraging to report strong progress in key areas such as data analytics and cyber since we started this research.
With risk management having to become more integrated, and technologies automating many labor-intensive tasks, the function will continue to redefine the balance of skills that is needed across risk teams. This balance is crucial, because there are so few professionals who possess every skill the risk function needs.
From general quantitative competencies to technology acumen, industry knowledge, niche risk specialties, communication skills, creativity and management experience, candidates with the whole package are extremely rare. CROs need to build teams that comprise every skill, and lead their members to work as one.
Q: Integrating across the business is the third major theme to emerge from this year’s insurance report. How well are risk functions integrated with other parts of the business?
Overall, we are seeing a trend towards greater centralization of risk management at the group level. One-quarter of 2017 respondents have centralized coordination of risk management activities across all risk types, whereas only 15 percent have done so for all business lines.
More than half (53 percent) say there is duplication of effort in risk management across lines of business. This seems to be changing. In two years’ time, respondents expect to be further centralized, with around a third expecting coordination to be centralized both for all risk types (36 percent) and all business lines (33 percent).
Integration is also important between core business functions. Around 58 percent of insurance respondents said a lack of integration with other business functions was a challenge that impeded the effectiveness of the risk function. It comes down to leadership. Risk leaders with the right focus and discipline are expected to have enough strategic influence to integrate risk across the business, coordinate activities and invest wisely in the overall development of the function.