External and internal pressures are accelerating the development of risk management capabilities across the global insurance sector, according to a survey by McKinsey & Company.
The survey results, revealed at RiskMinds 2016 in Amsterdam, addressed the driving forces behind an increasingly complex environment, evolution of risk management tools and practices, and increasing debate around systemic risk.
The survey, which ran between July and October 2015, showed that interest rates and market volatility are considered the most impactful factors and the industry has increasing concerns over biometric risk and changes in customer preferences.
Participants also noted that the insurance industry is less “systematic” than banking, with national catastrophic risk and a potential loss of confidence in the industry the main sources of concern.
Regulatory frameworks are also considered to be effective in preserving financial stability, according to the survey, while there is question over whether there is need for additional regulation.
Nine out of 10 participants felt there is a need for improvement in their risk capabilities and a need for more improvements by smaller players.
Risk transparency and insights were key improvement areas for all participants, while risk culture is particularly crucial for smaller players. Participants also said there is still room for improvement when it comes to risk appetite, organisation and governance areas.
Luca Pancaldi, partner at McKinsey & Company, suggests that the company’s experience with successful enterprise risk management transformations share common traits.
He believes that the chief risk officer needs to take the driver’s seat and step up to a true leadership role. He also suggests that the board and top management need to commit to steering the programme in the right direction.
An integrated perspective, with consistency across core enterprise risk management elements, is even more important than achieving excellence in a specific area. Pancaldi also noted that there needs to be an emphasis on communication and a good connection between the board room and the “machine room”.
