Persistent low growth combined with low interest rates are constricting the traditional sources of revenue for the insurance industry, creating an urgent need to seek out new sources of revenue and accelerate innovation. The industry is threatened by disintermediation and needs new, digital business models that leverage existing brands and customer relationships. The risk management function will need to continue to play a bigger role in the organization to overcome these challenges successfully. The foundation of the insurance industry is built upon the careful analysis and management of risk. In evaluating client risk, the industry’s risk management professionals have made significant advances. Yet, insurance companies also face internal risks in the form of proliferating regulatory and reporting demands and the need to strengthen their control frameworks. Risk professionals are increasingly called upon to keep a close eye on emerging risks, assess the impact of digital disruption and help the business achieve its growth objectives. Some 85% of insurance respondents to Accenture’s 2015 Global Risk Management Study believe that risk management has helped their business to generate long-term profitable growth to at least some extent. There is, however, much more work to be done. For example, more than two-thirds of respondents (71%) warn that a lack of integration with other business functions is impeding the overall effectiveness of risk management in their organization. One of the biggest challenges of all, say more than three-quarters (76%) of insurance respondents, is gaining the trust of business units to advise on their operations. This is driven by many factors, from the skills of the people in the function; to the heritage position that Risk has played in the organization; to the organization structure and mandate that the CEO has given to the chief risk officer (CRO). Whatever the reason, it is clear that the strategic partnerships that risk executives need to build are not yet fully in place. Risk management is also playing a greater role in achieving business objectives through the development of an efficient, business minded operational risk management framework, which extends beyond risk models or definition of internal controls. Underpinning technologies, which are increasingly antiquated; new businesses, which were acquired but never fully integrated; and emerging and cyber based risks from external sources are some of the leading issues increasing the importance and focus on the operational risk agenda. Five key priorities that insurers should address to keep pace with the rise of digital and competitive industry challenges include:
- Coming to grips with digital. Insurers surveyed in the 2015 Global Risk Management Study agree that digital initiatives represent an opportunity for risk management to shine as a business partner. For now, though, the level of digital expertise within the risk function in insurance is not particularly high – and this could hamper its ability to influence broader strategic thinking on the topic.
- Strengthening data and analytics capabilities. Insurers need a better handle on both internal and external data to find ways of implementing differentiated business strategies. Getting access to more and better data will also be a key factor in enhancing operational risk management. This remains an area of weakness for many insurers surveyed.
- Establishing agile and effective operational risk management to deliver on the next wave of business growth. As the business environment becomes more complex, more uncertain and more regulated, operational risk management provides a needed perspective on increasing performance. Operational risk can be an effective tool to define, develop and protect new capabilities required in the search for growth.Many insurers are increasing their focus on operational risk, particularly in areas where new technologies are evolving rapidly, such as digital, big data and social media. Among our insurance respondents, 74% expect cyber and IT risks to become more severe over the next two years while 65% expect fraud and financial crime to pose a greater concern.
- Ramping up recruitment and retention efforts. Many insurance respondents are struggling to keep pace with the demand for highly specialized skills and knowledge in the risk function. Just seven percent of insurance respondents say that their teams have sufficient internal resources in specialized areas, such as modeling or emerging risks. Demand for people with skills and knowledge in data management and analysis, and cyber risk, is particularly high.
- Creating a consistent risk culture. In the face of disruptive change, respondents struggle with implementing an enterprise-wide risk culture. Just seven percent of surveyed insurers say they have a strong and consistent risk culture that is understood and implemented across the entire organization. The goal for insurers should be a culture where everyone – not just those in the risk function – has access to data and analytics that will enable them to make decisions and choices based on an assessment of both risk and return over the long term.
The industry needs its risk professionals to be able to evaluate and support new ventures while protecting their companies against evolving and emerging risks. They should also provide strong guidance around operational risk and emerging technology challenges, particularly with the new digital channels and business models emerging via these platforms. These are tough assignments. The risk management function within insurance companies has made tremendous advances in recent years but needs to continue its rapid progress to proactively respond to changing business and consumer demands.
