The boards of insurance companies have still not implemented a fully effective risk culture in their organisations despite significant investment since the financial crisis of 2008.
According to a survey by consulting firm Protiviti, almost two-thirds (63%) of executives reported that chief risk officers or heads of risk were still not on insurance companies’ boards of director.
This suggests that a board-endorsed risk culture has failed to take root in UK insurance companies.
Protiviti said the results showed that while insurers were continuing to invest in risk technologies to help meet compliance demands, a general ‘tick-box’ attitude to risk meant that UK insurers were missing out on the enterprise-wide opportunities presented by regulation such as Solvency II.
The survey also revealed that just 56% of senior insurance executives reported that their board provided executive management sponsorship and ownership of their firm’s risk management procedures.
Only one in five (22%) executives surveyed said their firms were using risk-based return on capital measures in business planning, while under half (48%) reported that the board always set risk appetites.
Just 19% believed the frequency and quality of board discussion around risk management was “strong”, with over half (55%) describing it as “fairly strong”.
Tick-box compliance
Peter Richardson, managing director at Protiviti UK, said: “The attitude towards the risk function seems to be that it is a regulatory requirement, rather than a source of added value to the company.
“It’s worrying that fewer than one in four of those we surveyed saw value-add in the risk function.
"The need to embed risk culture in insurance organisations may be widely recognised, but the research shows there is a long way to go before boards regard it as more than simply tick-box compliance, though one positive note is that the majority (67%) of respondents report that their firm’s risk culture is being addressed as part of their firm’s training programme.”
Mr Richardson continued: “While most boards set risk appetite, take ownership of Solvency II, sponsor risk management and measure risk –in other words, they tick all the right boxes – the survey finds that the risk function does not play a significant role in formulating strategy or business planning.
“It’s disappointing to see that only 15% of those surveyed saw this happening in their organisations. The question to ask is whether during this next wave of risk management, chief risk officers will be sitting on the board as a matter of course and implementing strategic risk management or just applying risk management processes?”
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