Insurers must make risk management a team sport

The role of the Chief Risk Officers (CROs) today is more multifaceted than it used to be. The financial crisis has expanded the CRO role, making risk management in the insurance industry more of a team sport than ever before. In fact, according to EY’s latest CRO survey, nearly one-third of respondents cited this shift in role as their biggest accomplishment for 2014. But more needs to be done to integrate risk management with the rest of the business.

It’s reassuring to see organizations beginning to recognize and embrace the risk function. But unlike many other areas, the efforts of the risk team aren’t a clearly defined metric. One way to show value is to have regular conversations with company management. In EY’s survey, 37% of CROs reported that dialogues they’ve had with management demonstrate the value they bring to the organization.

This two-way communication is key to being better prepared. It helps insurance companies build a solid foundation to withstand external challenges facing the industry today. Forty percent of respondents cited regulation and capital standards as their biggest risk challenges. Cybersecurity followed at 14% of respondents. And, 13% of these companies cited interest rates and the economy as major risk challenges.

Despite acknowledging these challenges, only 53% of respondents actually have a formal model of risk governance/validation practice in place. There still remain many gaps in a company’s line of defense risk organizational structure. While 74% of CROs said they have some form of three-line defense structure, there are issues to be worked out.

External challenges are plentiful for the CRO, but they can be overcome with teamwork. If CROs can keep having important conversations with key business leaders and show the value of integrating the risk function in everything an insurance company does, they will be able to meet the challenges that come their way.

You can learn more about the survey findings by reading EY’s Chief Risk Officers at Insurance Companies Concerned by Capital Standards and Increased Regulation.