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PwC: Survey finds shortfall in insurance industry

By Rob Starr, Content Manager, Big4.com

According to PwC US’s 2012 U.S. Insurance ERM & ORSA Readiness Survey, While the U.S. insurance industry is making strides toward Risk Management and Own Risk Solvency Assessment Model Act readiness, a definite gap appears to exist between the perception of RMORSA preparedness and the actual completeness of insurers’ enterprise risk management frameworks.

Paul Delbridge, leader of PwC’s risk and capital management services practice comments:

“Setting the risk strategy, implementing and validating a capital model and developing effective risk reporting capabilities could take a couple of years. Our survey shows that many organizations may be underestimating the amount of work it will take to meet the RMORSA requirements” he said. “Achieving a risk-aware culture through the organization will require all areas to understand their roles and responsibilities in relation to risk identification, measurement, mitigation and monitoring within the ERM framework.”

Key findings in each of these areas for the insurance industry include:

  Twenty five percent of insurance industry companies reported that risk appetite metrics are not part of the business planning process, while only 57 percent include some, highlighting a significant disconnect between risk management and strategic decision-making. A quarter of insurance industry companies do not have a risk-specific limit framework to guide the business’ compliance with risk appetite. A robust risk appetite and limits framework enhances risk governance and provides a platform on which to engage every stakeholder.

As well, 22 percent of insurance industry companies reported not having a formal process to address risk identification, with most of these insurers adopting an informal one to address risk identification.  A small minority reported that they do not have or do not see a need for a formal process. Moreover, many companies do not have fully documented risk policies that cover the significant risks to which they are exposed. The RMORSA process is also an ideal opportunity to perform a comprehensive stress, reverse stress and scenario testing exercise. RMORSA should take place in conjunction with an organization’s business planning process, leading to a high degree of coordination between risk, underwriting, strategy, finance and compliance functions for the insurance industry.

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