Optimizing and balancing corporate agility for insurers
The speed and ability to identify and react to internal and external events is foremost on the minds of insurance industry executives. What practical steps can insurers take to improve strategic risk management?
Linking formalized risk management activity with strategy continues to challenge organizations in both planning and implementation. Our experience shows no consistent approach being applied across the market, as well as a lack of consistent involvement by risk management professionals in those activities that do take place.
Our conversations with CEOs and CROs increasingly turn to strategic uncertainty and managing unanticipated risks as effectively as possible. The dialogue deals less with compliance and more with the broader benefits and business value that can be derived. It is no surprise that the topic continues to gain momentum in an uncertain economic environment.
Of particular importance is the delay in the timeline for Solvency II, which links risk management and internal models to strategic decision-making. As companies continue Solvency II spending, they need to step back and review their risk management efforts.
Addressing strategic uncertainty
A good risk management strategy is necessary for success—but not sufficient. Corporate interconnectivity and system complexity means that the frequency and severity of known and emerging risks cannot be fully understood at all times. For many organizations, Solvency II provides an external stimulus for some companies to refresh their approach to uncertainty.
Insurance companies may not need to be as agile as some industries, but they must address business uncertainty. Opportunities for progress and greater corporate agility arise when those actions improve risk assessment, risk detection and reaction time.
Steps for improving strategic risk management
We suggest that most companies develop risk management strategies, and then set up formalized strategic risk assessments. A firm can attach the assessment to the strategy and revisit the approach periodically.
To optimize the management of strategic uncertainty, we suggest the following:
Corporate agility to deal with strategic uncertainty can be enhanced with more sophisticated risk management collaboration between CEOs and CROs. As organizations increasingly formalize their approach to dealing with these challenges, the consistent involvement of professional risk specialists seems likely.