The insurance industry is in need of new revenue sources. This is the result of persistent low growth and interest rates. This combination is constricting traditional sources of revenue and enhancing a need for accelerated innovation. The entire industry is looking at disintermediation and the only recourse appears to be new digital business models in order to leverage brands and CRM.
Risk management has to play a bigger role in production if the industry hopes to overcome these obstacles. The insurance industry's foundation is built on the astute analysis and management of risk. Through evaluation of client positioning, risk managers in the insurance profession have made noticeable advances. Insurance companies are also confronting internal risks. These risks come in the form of proliferating reporting and regulatory demands.
There is also the need to fortify control frameworks. Risk managers are being called upon more to manage emerging risks, to assess the impact of digital disruption and to see how to better achieve growth objectives. According to the Accenture 2015 Global Risk Management Study, over 80% of insurance respondents thought that risk management was, to some extent, able to help generate long-term growth profit.
Still, the industry knows there is more to do. Almost three-quarters of respondents in the Accenture study believed trust with business units was critical. There needs to be more consideration of the heritage position risk played in operations; a greater comprehension of skills of people in the function; and conceptual understanding of structure and mandate organization that a CEO presents to a chief risk officer (CRO). It is obvious to risk executives that needed strategic partnerships are not fully in place. Risk management is also expanding its role in business goals by developing a more efficient operational risk management framework. The framework would extend outside of traditional risk models or limits of internal controls. This would entail underpinning technologies, acquired businesses never completely integrated, and cyber and emerging based risk from external sources. These are leading issues increasing the focus and importance of the operational risk agenda.
There are five priorities the industry will need to address in order to align with the rise of digital and competitive challenges:
1. It is understood digital initiatives present an opportunity for risk management to stand out. Currently, the digital expertise levels within the risk function in insurance is not particularly high. That could hamper the chance to influence a broader range of strategic thinking in this area.
2. Insurers have to get a better grip on external and internal data, implementing new ways to differentiate business strategies. Access to better data is also key to enhancing operational risk management. Unfortunately, according to the Accenture survey, this remains a weak area in many insurance companies.
3. With the growth of complexity in establishing agile and effective operational risk management, there has to be greater resources for providing perspective on performance. Defining, developing and protecting new capabilities needs to remain a focus of operational risk management. This is especially crucial as technology, such as big data, digital and social media, is in perpetual evolution. Many of the surveyed respondents believe there has to be a focus on IT and cyber risks, and a concern for fraud and financial crime.
4. The industry is also struggling to keep up with the demand for specialized knowledge and skill in the risk function. Only seven percent of respondents in the survey thought their teams had the needed internal resources in areas like modeling and emerging risks. There needs to better cultivation of people with skills in data management, analysis and cyber risk.
5. With the consistent risk of disruptive change, a strong risk culture is imperative. The insurance industry appears to be struggling with managing an enterprise-wide risk culture. Less than 10% of respondents thought their company had a reliable risk culture. They believe there should be a goal to design a culture where everyone has access to analytics and data that allows them to make informed decisions based on the assessment of both return and risk over the long term.