Moving risk management forward

While risk management has always been an important part of the financial services industry, recent events have highlighted the importance of it. Most recently there have been some questions as to whether insurers are taking risk management as seriously as they should.

This may be an unfair mind set. The challenges that insurers face are not limited to a specific section of their business; risk managers also face industry challenges such as a new regulatory paradigm, lower growth because of regulatory costs, pressure on risk managers to reduce costs, and emerging risks such as cyber risks.

Moving forward

How do risk managers move forward to remain relevant in an industry that is constantly changing? This was a topic which was discussed at a recent event held by the Institute of Risk Managers South Africa (IRMSA).

Speaking at the event, Paul Calvey – Partner at Oliver Wyman South Africa – pointed out that risk managers can take specific approaches to remain relevant. 

The first is risk identification. This needs to be approached with an open mind where risk managers are constantly looking for new risks rather than simply following processes and traditional risks.

“The expected risk identification evolvement in the future will include access to new sources of risk data using the latest tools available to the industry as well as the use of artificial intelligence which will drive new insights, particularly when it comes to non-financial risk,” said Calvey.

The importance of monitoring

After risk identification, risk monitoring is an important aspect of enterprise risk management. This was recently highlighted during the Knysna Fires and Cape Storms where although the losses were significant, they could have been more if there was poor risk monitoring.

“Risk managers will need to use new approaches and technology to monitor risk in the future. They will have to make wider use of Big Data to obtain forward looking views of risk developments in order to enable a more comprehensive, but smarter monitoring of risks with the new technologies available to them,” said Calvey.

A new skill set

With new challenges comes a new requirement when it comes to the skills needed to succeed in the industry.

“Data scientists will be the new star players in the industry. They will be able to monitor modern data science techniques to drive the success of future risk functions. Additionally, the risk department needs greater focus on recruiting and managing data scientists with significantly different approaches,” said Calvey.

Another key role player will be flexible thinkers. “Where business models lean towards innovation, the risk function must embrace change and be more flexible and innovative. Risk functions must be highly flexible when compared to traditional rules based approaches,” said Calvey.

Cultural trend setters

The fact that risk management is mostly about embracing a culture which needs to be established in a business is undeniable. Calvey added that the role of risk in an organisation’s culture is key to success, risk managers need to avoid being an unnecessary impediment to change.

“Risk managers must be able to set the tone for collaboration through boundaries with colleagues working towards achieving the right organisational culture. Trusted business relationships are key and can only be achieved if everyone is on the same page,” said Calvey.

Regulator friendly

The final key capability which will ensure the relevance of risk managers in the future is that they need to be regulator friendly. Calvey pointed out that evolving regulatory demands are expected to dictate the risk agenda.

“Consequently, risk managers – and the staff working under them – needs to be skilled with the ability to understand and respond to regulatory requests. It is vital that this element is properly understood,” said Calvey.

Editor’s Thoughts:
Risk management is growing in importance as clients are becoming more aware of the intricacies of the insurance industry. However, do we have the vital industry skills needed to improve the risk management function in the future? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.