Global challenges of risk management
Companies around the world are dealing with increasing regulations. Although the specific requirements may vary across geographic borders, they are often based on similar principles. Generally, these principles focus on stronger oversight and efforts to integrate risk management into business strategy and decisions.
This sentiment manifests itself across the insurance industry with ORSA requirements in the United States, and Solvency II reporting in Europe. It's also present in the banking industry with recovery and resolution planning (RRP), supervisory stress tests, and the Comprehensive Capital Analysis and Review (CCAR) requirements.
These new regulations are pushing firms to demonstrate a more advanced level of data management, process integrity, and transparency than ever before. ORSA, in particular, requires the insurance industry to incorporate risk management practices into daily business functions holistically. This integration represents an overall shift in the risk management profession toward a more strategic role in managing business.
This trend is gaining steam in the insurance, banking, and finance industries. Strategic planning and forecasting allow them to more accurately identify risks to determine corresponding levels of exposure. The challenges to integration vary somewhat by industry.
For example, although risk management in the insurance industry is heavily integrated into managing the business, the industry as a whole faces technology problems. Confidence in the data is difficult to obtain and often compromised coming from multiple legacy systems and is managed in spreadsheets.
The process of managing and tracking data and other information that fuels the risk management engine can be a frustrating and broken process. Although it's a time consuming effort, the larger concern is identifying the risks associated with incorrect information. Regulators and board members are asking for answers to more and more complex questions. The inability to substantiate their accuracy to regulators is unacceptable. As the demands grow, risk teams will be required to refocus their efforts.