Insurers called to establish set of common operational risk standards and principles

Caroline Coombe: CEO at Oric International

Caroline Coombe: CEO at Oric International

The insurance industry is being urged to establish a set of common standards and principles, particularly in relation to scenario analysis and capital model design, in order to deliver a greater level of industry convergence while at the same time enhancing Best Practice.

The recommendation is based on a joint survey of major UK and global insurers (including primary life insurers, general insurers, composites and re-insurers) conducted by ORIC International and management consultancy Oliver Wyman.

The survey, entitled ‘Operational Risk Management and Measurement’, polled ORIC International members (who represent 70% of the UK insurance market) in a bid to understand their current operational risk management and measurement practices in addition to priority areas for future enhancements.

Caroline Coombe, CEO at ORIC International (one of the world’s leading providers of operational risk event data for the (re)insurance and asset management industry) told Risk UK: “While we’re conscious of the size and practice variations between insurance companies across the world, our survey findings show that there’s significant variation in companies’ approaches to operational risk capital modelling and scenario analysis. Establishing a set of common standards and principles would improve understanding and help to enhance risk management practices, not to mention deliver a greater level of convergence across the industry.”

The key findings of the joint survey were launched during the recent RiskMinds Insurance Conference, itself designed to present the latest thinking in risk, regulation and capital management for the global insurance industry.

Sean McGuire, a partner at Oliver Wyman, added: “There exists an opportunity for the insurance industry to converge around common approaches that retain the sophistication of an internal model while avoiding the fragmentation and instability that has led to a review of the Basel II AMA regime.”

McGuire continued: “The survey results indicate that the insurance industry is making good progress. By sharing these results at a conference attended by many risk experts, we hope to promote industry thinking on how we further embed risk identification, assessment, management, measurement and reporting measurement in the business. Embedding operational risk management in decision-making was seen as the top priority for firms going into 2015.”

Enhancement of risk identification and assessment

Improving the articulation and use of risk tolerance was identified through the survey as a key priority for smaller insurers, who were also dissatisfied with the effectiveness of their Key Risk and Control Indicators.

Larger institutions pinpoint the enhancement of their risk identification and assessment approach as a priority for development, in turn highlighting the complexity of achieving this status quo in a large organisation.

Risk Control Self-Assessments and scenario analyses were confirmed as the two main tools used across the industry. There are substantial differences in how the process is managed, ranging from purely ‘bottom-up’ identification of risks to ‘comply or explain’ approaches tightly managed by the central risk function. There are also substantial differences in how scenarios are parameterised.

In terms of measurement, the capital models in use by participating members span a broad range of approaches. Hybrid models combining scenario analysis with loss event data analysis are the most popular category, but even within this sub-set designs can vary substantially.

Other model features such as the diversification benefit achieved similarly vary between 0% and 79% across the firms surveyed.

*To receive a summary of the results from ORIC International and Oliver Wyman’s survey on Operational Risk Management and Measurement send an e-mail to:

About the Author
Brian Sims BA (Hons) Hon FSyI, Editor, Risk UK (Pro-Activ Publications) Beginning his career in professional journalism at The Builder Group in March 1992, Brian was appointed Editor of Security Management Today in November 2000 having spent eight years in engineering journalism across two titles: Building Services Journal and Light & Lighting. In 2005, Brian received the BSIA Chairman’s Award for Promoting The Security Industry and, a year later, the Skills for Security Special Award for an Outstanding Contribution to the Security Business Sector. In 2008, Brian was The Security Institute’s nomination for the Association of Security Consultants’ highly prestigious Imbert Prize and, in 2013, was a nominated finalist for the Institute's George van Schalkwyk Award. An Honorary Fellow of The Security Institute, Brian serves as a Judge for the BSIA’s Security Personnel of the Year Awards and the Securitas Good Customer Award. Between 2008 and 2014, Brian pioneered the use of digital media across the security sector, including webinars and Audio Shows. Brian’s actively involved in 50-plus security groups on LinkedIn and hosts the popular Risk UK Twitter site. Brian is a frequent speaker on the conference circuit. He has organised and chaired conference programmes for both IFSEC International and ASIS International and has been published in the national media. Brian was appointed Editor of Risk UK at Pro-Activ Publications in July 2014 and as Editor of The Paper (Pro-Activ Publications' dedicated business newspaper for security professionals) in September 2015. Brian was appointed Editor of Risk Xtra at Pro-Activ Publications in May 2018.

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