Optimizing and balancing corporate agility for insurers

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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.

Taking action

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:

  • Ensure the value driver levers for the existing strategy are clear
  • Identify and evaluate uncertainties that could make it easier (or more difficult) to operate the value driver levers effectively, and consider the likely impact of how those uncertainties are managed
  • Analyze your company’s capability to detect and anticipate internal and external events that would impact value driver levers
  • Evaluate the company’s capability to respond to unforeseen events
  • Understand your risk management capabilities and how corporate agility factors contribute to them
  • Prioritize improvements and optimize corporate agility in relation to strategic risk and uncertainty

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.