Global insurance executives across all business segments say a strong correlation is emerging between advances in the development of their enterprise risk management (ERM) framework and enhanced business performance. According to a recent ERM insurance survey conducted by global professional services company Towers Watson (NYSE, NASDAQ: TW), insurers experiencing the greatest incremental gains from their ERM techniques are also the furthest along in embedding ERM into their business. This is particularly evident with regard to insurers’ risk-based information, risk culture, risk appetite process and model usage in risk-based decisions.
The survey findings revealed that the most prominent business changes resulting from North American insurers’ ERM programs have all steadily increased since Towers Watson last conducted its ERM insurance survey in 2010. North American insurers ranked product pricing (51% versus 39% in 2010), risk strategy (48% versus 38% in 2010) and reinsurance strategy (44% versus 34% in 2010) as the areas of their business most impacted by their evolving ERM programs.
“Our research provides insights into the challenges companies are up against with effective ERM implementation. Companies able to overcome these obstacles and continue investing in targeted areas of ERM are much better positioned to improve business performance, stakeholder value and long-term success,” said Mark Scanlon, Life ERM practice leader for the Americas, Towers Watson.
The survey results underscored three fundamental ways ERM adds value for insurers:
- Helping to avoid surprises that may threaten a company’s franchise value
- Better informing important risk/return business decisions in areas such as capital management, strategic planning, capital allocation and risk transfer
- Reducing insurers’ capital requirements through enhanced regulator or rating agency perception (insurers demonstrating strong ERM practices and risk-based decision making to rating agencies can potentially derive benefits to their rating and capital requirements)
“Compared to 2010, insurers are increasingly looking beyond ERM as a means to mitigate downside risk and are seeing the upside value of ERM as a way to enhance risk/return decisions,” said Eric Simpson, Property & Casualty ERM practice leader for the Americas, Towers Watson. “Going forward, this trend will accelerate as stochastic economic capital modeling becomes more prevalent and accessible among large and small insurers to support risk/reward decision making.”