EMB, a global property and casualty (P&C) consulting firm, today identified the top three shortfalls in insurer risk management programs: inconsistent or poorly executed models, inadequate enterprise-wide collaboration, and contagion impact among human capital risks and underwriting risk. The current economic downturn is motivating insurers to improve risk management programs but many organizations are still overlooking one or more of these critical areas in their enterprise risk management (ERM) programs.
While many insurers are adept at identifying and prioritizing risks, they often lack the understanding of how these risks can interact and affect an organization’s entire risk profile. To take an ERM framework one step further, leaders from the C-suite to individual departments must make aggregate risk assessments and reduce the uncertainty or unknowns associated with a risk at any given time.
Models are key scenario-testing tools in measuring risk. However, their effectiveness requires consistency in data and use that can be difficult to achieve between departments with differing goals. Closely related is the need for company-wide collaboration in risk management decisions. Companies must achieve the best combination of risk taking, risk mitigation and risk avoidance to optimally achieve organization objectives and goals. To assure this mix will be achieved, a key organizational leader – ideally a Chief Risk Officer – should be appointed who can make risk decisions in the best interests of the entire enterprise, as opposed to an individual department or business unit. All areas of a business must fully support these key risk decisions to ensure an ERM program is effective.
Human capital risk, including employee skills shortages and turnover, also poses a danger to an organization’s risk profile, especially in terms of the contagion impact it can have on other risks the company faces. For example, to properly manage an insurance company’s underwriting risk, often one of the biggest risks faced by insurance companies, the proper number of qualified agents and employees must be on hand to design and implement an effective risk underwriting process. Properly trained and experienced employees translate into better business practices and reduced costs while helping organizations maintain appropriate risk levels. When good employees are lost, it has the potential to significantly impact an organization’s risk exposure.
“While it is reasonable to prioritize some risks over others at any given time, insurers simply cannot ignore everyday risks, like employee turnover, and how they can increase the potential of major business risks,” said Tom Hettinger, Managing Director, EMB North America. “Poorly designed or executed models, the lack of enterprise-wide collaboration, and inadequate human capital management can affect bottom-line numbers in major ways if overlooked. Organizations must understand the interactions between all the risks they face to understand the magnitude and importance of individual risks. Creating company-wide risk profiles is essential in order for senior leadership to steer their organizations strategically to deliver optimal value to their stakeholders.”
About EMB in North America
Established in 1993, EMB is a rapidly growing international consulting firm specializing in property and casualty (P&C) insurance. Its services cover personal lines, commercial insurance and reinsurance, which includes the London Market and Bermuda. EMB offers C-Counsel Business Consulting, Actuarial Consulting, Professional Development, Marketing Sciences and Software. Additionally, EMB pioneered the development and use of high-performance actuarial software, which allow businesses to perform tasks that would otherwise be impossible, impractical or hugely time-consuming. EMB employs more than 300 people around the globe covering Americas, Asia-Pacific and Europe, Middle East & Africa and clients include 28 of the top 30 P&C companies in the world.