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To CRO or not…

16 May 2004 Angelo Coppola

Ernst & Young has released the results of a survey which looks into the risk measurement and capital management in the insurance industry.

Some of the findings included that 25% of insurance companies have a full-time chief risk officer (CRO) on board. Another 15% have assigned that accountability to an executive who also manages other functions.

Commenting on the results of the survey, Philip Strachan, partner in Ernst & Young Financial Services, says a surprising finding of the survey, conducted among top 100 insurance companies internationally, is that 25% of companies with revenues exceeding US$10bn and 50% with revenues over US$2bn did not employ a CRO at any level.

"While the CRO position is not yet seen as a top corporate priority, the emergence of this high-level role has been swift," he says.

"Of those that do have CROs, 78% said the position had existed for less than three years, while only 11% had CROs on the job for longer than three years."

Strachan says none of the global short-term and multi-line insurers surveyed have had a CRO for more than three years.

"Yet 15% of life companies have had a CRO position for more than three years and another 54% have had the position between one and three years," he adds.

According to the survey, which examined leading insurers' current perspectives, perceptions and approaches to measuring risk and managing capital, 62% of life insurance companies have CROs and another 5% have someone who has risk management as a chief job concern.

Conversely, 75% of short-term and 57% of multi-line companies have not yet created the CRO position, with 50% of each type not having a CRO at all.

According to Strachan, the survey results confirms the growing recognition that risk and risk management have reached a threshold of importance that warrants an investment in dedicated expertise.

The survey also confirms that insurers have for some time been addressing risk issues on multiple levels and in a variety of ways.

All respondents reported having formal risk measurement committees at some organisational level. 46% reported having a cross-functional corporate risk committee and 22% said they had board-level risk committees.

In terms of the frameworks used by risk committees and CRO, the survey found that the insurance industry is pretty far along in terms of having risk measurement practices in place, but not in terms of having a complete, consistent measurement system in place.

"Recent turmoil in the global economic, business and geopolitical environment has dramatically increased risk levels across the financial services industry," says Strachan.

"The need for companies to understand and quantify risk, at the top-line aggregated level, as well as at product and divisional levels - has never been greater."

Quick Polls

QUESTION

There are countless articles written about South Africa’s poor retirement outcomes. Which of the following would you single out as the biggest contributor to local savers not accumulating enough to buy an adequate and sustainable pension?

ANSWER

Lack of personal accountability
Poor participation in formal retirement funds
Reluctance to seek financial advice early on
SA’s high unemployment rate
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