Companies Increasingly Focusing On ERM
It is clear that companies recognize ERM as a critical management issue. This is demonstrated through the prominence assigned to ERM within organizations and the resources devoted to building ERM capabilities. In a 2008 survey by Towers Perrin, at most life insurance companies, responsibility for ERM resides within the C-suite. Most often, the chief risk officer (CRO) or the chief financial officer (CFO) is in charge of ERM, and these individuals typically report directly to the chief executive officer. From their vantage point, the CRO and CFO are able to look across the organization and develop a perspective on the risk profile of the firm and how that profile matches its risk appetite. They act as drivers to improve skills, tools and processes for evaluating risks and to weigh various actions to manage those exposures. Companies are also actively enhancing their ERM tools and capabilities. Three quarters of responding companies said they have tools for specifically monitoring and managing enterprise-wide risk. These tools are used primarily for identifying and measuring risk and for management decision making. Respondents also reported that they have made good progress in building their ERM capabilities in certain areas.
In this study, more than 80% of respondents reported that they currently have adequate or better controls in place for most major risks. In addition, about 60% currently have a coordinated process for risk governance and include risk management in decision making to optimize risk adjusted returns.
In another survey conducted in May and June 2008, against the backdrop of the developing financial crisis, six major findings came to light regarding risk and capital management among insurers worldwide:
- Embedding ERM is proving to be a significant challenge
- Company size matters
- European insurers are better positioned
- ERM is influencing important strategic decisions
- Economic capital standards are gaining ground
- Operational risk remains a weak spot
Read more about this topic: Enterprise Risk Management
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