6 minute read 24 Nov 2022

Insurance CRO Survey 2022: What are the risk function key priorities?

Authors
Katrien De Cauwer

EY Belgium Financial Services Actuarial, CFO Consulting and Sustainable Finance Leader

Seasoned Actuary and FS professional. Entrepreneur. Passionate about female empowerment at EY and in the wider industry. Devoted to helping talent define the legacy they want to build. Mother of 3.

Maarten Bocksteins

EY Belgium Financial Services Risk Consulting Partner

Seasoned insurance and actuarial professional who strives to ‘connect the dots’. Passionate about team work and collaboration. Loves running. Father of two daughters.

6 minute read 24 Nov 2022
Related topics Financial Services Insurance

EY’s 2022 CRO Insurance survey collected views from 118 European insurers, identifying their priorities and key challenges.

In brief:

  • EY surveyed 118 CROs of European Insurance companies on their main focus areas for the upcoming year
  • Key priorities for the next twelve months are:
    • Modernization and digitalization, e.g. dynamic dashboarding, automated data cleansing, predictive risk via analytics, GRC platforms.
    • Sustainability & climate risk management, with risk functions focusing on integrating the ‘E’ of ‘ESG’ into their ORSA and ERM frameworks.
    • Operational resilience (including DORA) and product oversight due to increased regulatory focus.

The pace of change has drastically accelerated in the past few years. With increasing scrutiny on ESG, more digital businesses and a raging war for talent, companies must reinvent themselves. For the insurers’ risk function, the magnitude of this transformation is unprecedented and brings its fair share of challenges.

What are the key priorities for Insurance Chief Risk Officers (CROs)? How is the risk function adopting digitalization and adapting to ESG demands? To understand the changing dynamics in the outlook of the risk function, EY conducted a survey on a spectrum of leading life and non-life insurance companies and prominent insurance groups across Europe. One hundred eighteen CROs responded (out of which eleven Belgian participants). The study explored four key themes:

  • Organization and structure
  • Modernization and digitalization
  • Environmental, Social and Governance (ESG)
  • Product governance
     

1. Organization and structure - Climate and sustainability as well as increased digitalization are the key priorities for the next 12 months, and finding the right profiles is difficult

When CROs were asked to reflect on their new responsibilities and main focus areas in the next twelve months, climate and sustainability came out on top. Recent climate-related events and the upcoming regulation on ESG are an important factors that explain this prioritization.

The increasing accessibility of new ‘digital’ tools drives the modernization of the risk function. This includes dynamic dashboarding, automated reporting, automated on- and offshore data processing, GRC platforms and risk analytics for early detection of risks such as fraud or cyber-attacks. Furthermore, the aftermath of the COVID-19 pandemic and the current geopolitical instability have brought more attention to digitalization, but also to operational resilience.

GRAPH 1: Key priorities and focus areas over the next 12 months

Graph: Over the next 12 months, what are your key priorities / focus areas for your function?

In order to tackle these priorities, risk functions need to retain and recruit the necessary resources, possessing the right skills. Despite the eagerness to maintain or expand the risk teams, finding the right profiles has become increasingly difficult. 86% of the Belgian CROs state that it is much harder to retain or hire qualified talents, mentioning cyber risk, data security, product governance and data analytics among the scarcest competencies. Where the first two have been the highest non-financial risks on top of the agenda for several years, product governance capabilities are in demand in light of recent regulatory changes. Data analytics skills are required to develop and maintain the growing pace of digitalization. The war for talent and increased regulation translate into a budgetary impact on the risk function that has gone up over the past year.
 

GRAPH 2: Increasing challenge to hire and to retain qualified talents

Graph: Compared to a year ago, would you say that hiring and retaining suitably qualified talent is easier, harder or about the same?
Graph: What 3 skills or competencies do you consider he most challenging to recruit, develop and retain?

2. Modernization and digitalization – A clear shift towards digitalization and tooling is needed to increase productivity and effectiveness of the risk function

All insurance companies are increasingly focusing on ‘digitalization’ and tooling to increase productivity and effectiveness of the risk function.

In the last twelve months, over half of Belgian respondents have implemented process mapping, improved first-line risk management tools and invested in Governance, Risk and Compliance (GRC) systems. These initiatives are taken to facilitate a better communication between the first and second line and to improve data quality for risk management. The primary objectives are thus: #1 to improve management of key risks and #2 to increase the productivity. Interactive dashboarding are the most widely adopted tools within the risk function, with some of them moving towards (semi-)automated risk reporting. 

GRAPH 3: benefits of risk technologies and potential blockers

Graph: Where do you think your Risk Function can benefit from these / other technologies?
Graph: WTo fully realize your ambition for the Risk Function to operate in the digital world what challenges do you believe exist?

Risk functions are balancing internally developed and third-party tools for risk management, with the more mature risk functions setting-up dedicated teams within the risk department that work on risk tooling. At the same time, many respondents are aware of the potential issues of not fully realizing the benefits of ‘digital’ tools, shortage of skilled resources, fragmented ownership of the tools, and cost challenges as the most important ones.

Half of the Belgian insurers are allocating 10-20% (sometimes more) of their risk budget (including salaries and expenses) to developing and implementing risk tooling and/or risk technology. A large share (36%) of companies are planning to increase this budget even further in the next years.
 

3. Environmental, Social and Governance (ESG) – Risk functions are investing in maturing their ESG risk management capabilities

As mentioned, CRO’s indicate Climate and Sustainability as one of the key priorities for the next 12 months. It is clear that also over the past year this topic has been high on the agenda for many risk teams. Even though initial focus is mostly on Climate, the broader Environmental aspects and also the Social and Governance dimensions are starting to gain attention.

The survey showcases a broad variety in maturity when it comes to integrating ESG in the overall Risk management framework, with integration in risk appetite, risk measurement, scenario analysis and ORSA as concrete examples. Regulatory developments will facilitate CRO’s and their teams to further invest in maturing their ESG risk management capabilities. 

While Sustainability is a topic that touches the entire organization, the role of the risk function is to identify how ESG-risks impact the risk profile of the organization, and how to respond to these. In this role the Risk function is interacting with many other departments, with Asset Management as the stakeholder they are currently engaging with most. Human Resources, Product development & oversight as well as pricing and procurement are next in line. For each of those areas, intensified interactions are expected when more in-depth insights on ESG risk exposure and how to respond to these become available. It’s important to note that not only own risk exposures need to be considered, also increased attention for protecting clients who are faced with new and aggravating risks will be required. Insights from the risk function will help to ensure the product offering and the pricing are adjusted to these tendencies. This will enable the insurer to respond to the changing needs of the clients while ensuring appropriate pricing and managing the conduct risk of mismatches between customer expectations and value offered. 

CRO’s are putting ESG on the agenda when interacting with the Board Risk Committee. These interactions are currently more focusing on environmental aspects, although an average of 30% of the respondents indicate to cover also the Social and governance dimension for each of the topics surveyed . Topics surveyed include training, risk appetite, risk register, ORSA and (non-financial) reporting.
 

4. Product governance – Insurance companies need to monitor mismatches between customer expectations and product offering, also considering ESG elements.

The aftermath of the COVID-19 pandemic and the changes to the Insurance Distribution Directive to reflect ESG principles, are triggering a higher regulatory focus. This is confirmed by 38% of the Belgian respondents who are expecting more regulatory scrutiny in the next twelve months. Around 25% have informed the Board or are preparing for it via dedicated working groups, whereas 25% are refraining from taking actions on product governance until the regulatory policy has been clarified. The European counterparts are more actively monitoring and preparing for the outcome of regulatory requirements, and are engaging with regulators to influence the policy.

 

GRAPH 4: Activities undertaken in relation to the regulatory changes impacting product governance

Graph: What activity are you undertaking in relation to the regulatory changes impacting product governance within your jurisdiction?

Risk and compliance are expecting to be more actively involved into the product approval and product review process, and have to demonstrate formal evidence of these processes to the regulator. Furthermore, the emphasis is on monitoring ‘fair value’ for customers with regards to ESG elements. Such extension of duties could be challenging considering the already stretched resources, budget and hiring difficulties
 

5. Conclusion

It is clear that risk functions need to adapt to changing regulations and new techniques. Climate and sustainability as well as digitalization are therefore on top of the agenda of Risk Functions and will be in the years to come. Tools are implemented to enable modernization and digitalization, and to facilitate a productive and effective risk function. Insurance companies are rethinking the way they can retain resources and recruit the required skills to match these priorities. Product governance is getting an increased attention from regulators, and risk functions have consequently started to focus on this.
 

 

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Summary

Changing dynamics are affecting the insurance industry. In Belgium, as in the rest of Europe, modernization via digital tools, sustainability and product oversight are CROs’ main priorities for the next twelve months. Indeed, CRO’s recognize the importance of tooling to boost effectiveness and rely mostly on third parties in this area, due to an important shortage of skilled resources. While they are predominantly focusing on the ‘E’ in ESG, they are also monitoring ESG in the broader sense and its impact on profitability and product governance.

About this article

Authors
Katrien De Cauwer

EY Belgium Financial Services Actuarial, CFO Consulting and Sustainable Finance Leader

Seasoned Actuary and FS professional. Entrepreneur. Passionate about female empowerment at EY and in the wider industry. Devoted to helping talent define the legacy they want to build. Mother of 3.

Maarten Bocksteins

EY Belgium Financial Services Risk Consulting Partner

Seasoned insurance and actuarial professional who strives to ‘connect the dots’. Passionate about team work and collaboration. Loves running. Father of two daughters.

Related topics Financial Services Insurance