Insurers With More Developed ERM Programs Are Seeing A Return On Their Investment, According To Towers Watson Survey

North American Highlights

North American insurers included risk monitoring and reporting (52%), risk appetite (38%), and risk limits and controls (37%) as their top improvement priorities, followed by economic capital calculation capability (36%). According to the survey, insurers have made good progress with their risk appetite statements; however, they indicated that significant work remains to make certain their companies’ risk appetite process is embedded in the business. Importantly, less than one-half (46%) of North American participants have an analytical framework in place to ensure that their top-down risk appetite statements align with bottom-up risk limits in the business.

“Many insurers are finding it difficult to operationalize their risk appetite statements. Consequently, companies are beginning to realize the importance of closely aligning their enterprise tolerances with strategic planning and key risk limits, and validating them through economic capital modeling,” said Simpson. “The environment is such that rating agencies are scrutinizing insurers’ risk appetite statements, particularly those that exhibit higher-than-expected earnings and capital volatility.”

Embedding Risk Culture

Respondents agreed the development of a strong risk culture is pivotal for ERM’s success. Insurers in North America rated risk culture (82%) as the most important aspect of their ERM end-state vision, dominating all other factors. Engaging with senior management about aspects of building a robust risk culture has been well established by most insurers, while broader communication and education to foster a common understanding of risk management throughout the organization are top priorities in 2013.

“Linking performance incentives for executives to risk management metrics remain a very powerful method to embed ERM in an organization’s culture,” said Scanlon. “However, our survey indicates little momentum on this front, with more insurers placing higher priority on further developing their ERM framework, and making greater use of economic capital and risk appetite in risk-based decisions before activating risk-based performance measures.”

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