This is sent from the Economist Intelligence Unit London press office.
For immediate release: Tuesday, April 14th 2009
Despite investments in risk management, many insurers still lack an overall view of the business, says new research
Most insurers continue to manage through the rear-view mirror, attempting to predict the future based on stale reports, according to Strengthening governance, risk and compliance in the insurance industry, a survey and research paper written by the Economist Intelligence Unit and sponsored by SAP.
Few companies can produce accurate, near-real-time information to support decision-making, and fewer still have mastered scenario analysis and regular risk stress-testing, suggests the report. While insurers have become comfortable with the way they manage risk within operational silos, most have not invested in methods of managing all risk exposures throughout the
company and to track interdependencies.
Process complexity, data inconsistency and systems incompatibility are all contributing to the problem at a time when market volatility and investor unease require speedy, data-driven decisions. In the wake of the financial crisis, executives are paying more attention to how to aggregate enterprise-wide data and manage their businesses better, says Dan Armstrong,
senior editor at the Economist Intelligence Unit and the manager of the research. This is especially true in insurance companies, where there can be an almost paralysing level of complexity and decentralisation.
The findings were based on the responses of 58 insurance executives who were part of a larger 446-respondent survey on governance, risk and compliance conducted in the fourth quarter of 2008 and January of 2009. The report also includes interviews with executives at the multiline insurer Zurich Financial Services and the life insurer Securian Financial.
Other findings of the research include:
– The biggest benefits insurers hope to gain from standardising and automating financial processes are improving data accuracy, eliminating error-prone manual processes, giving staff more time to focus on more valuable activities, and making speedier decisions. While 24% of executives cited cost reduction as a key advantage, it ranked fifth overall. More than double that proportion highlighted data accuracy and integrity instead.
– Efforts to automate processes involve problems and risks of their own, many respondents believe. Almost half of respondents cited cost as a barrier to standardisation and automation, and 28% cited the difficulty of obtaining approval from independent-minded executives across regions and business lines.
– Insurers operating in the European Union will face pressure to refine and improve financial processes as part of the updated set of regulatory requirements known as Solvency II. The Supervisory Review Process of Solvency II aims to identify institutions with financial, organisational or other features that result in a higher risk profile. Because the authorities will review financial processes as well as governance and capital reserves, it will be necessary to know who participates in each process, what the person does, and the results of the process.