Enterprise Risk Management Report

The U. S. life insurance industry intends to change enterprise risk management (ERM) practices in the aftermath of the global financial crisis, according to a CSC study conducted with the American Council of Life Insurers (ACLI) and Towers Watson. The report, “Is Your Organization at Risk? A Different Look at Enterprise Risk Management,” notes that insurers plan to increase their spending on ERM technology as the financial environment recovers, focusing on better integration, accessibility of risk information and robust risk modeling.

While technology use is expected to accelerate, it won’t be the sole contributor to a winning ERM program: It must be accompanied by a clearly articulated risk strategy, a well-defined risk organization and centralized accountability for risk.

Based on focus groups and surveys of some 40 life insurers ranging in size from less than $100 million to more than $10 billion in revenues, the study suggests best practices to help close gaps in risk management identified by the companies that were surveyed and provides indicators to allow carriers to apply the survey results to their own organizations.

According to the study, insurers in 2009 focused primarily on rating agency and regulatory capital requirements, but now are renewing their emphasis on ERM. Almost half of the respondents felt neutral to dissatisfied with their ERM performance over the last 12 months. While technology is now largely untapped in enabling ERM, respondents indicated a significant increase in technology investment, with some insurers planning ERM IT investment increases of 75 percent or more in 2010.

The report also shows insurers can gain maximum benefit by exploiting ERM’s potential not just for avoiding risk but for maximizing returns — making more informed decisions based on a better understanding of risks, risk tolerances and rewards.