WHY INSURANCE COMPANIES SHOULD REVIEW THEIR OPERATING MODELS
R&C: Could you explain why insurance companies may need to review the operating model for their risk function?
Handy: There are three major reasons to think the operating model for risk functions needs an overhaul. First, businesses are recognising the risk function as more central and more strategic, as shown by the appointments of former chief risk officers (CROs) as chief executive officers (CEOs). Second, they need to ensure that the three lines of defence concept is fit to support new ways of working, including remote working. Third, and perhaps most importantly, today’s volatile business environment, with its many cost and other pressures, makes it vital to maximise agility and efficiency within the risk function.
R&C: What signs are there that insurance companies are assigning greater importance to the risk function?
Handy: One sign is that, over the past five years, an increasing proportion of former CROs have been making the CEO grade, rather than a tendency toward CFOs to move into that role. In addition, CROs are leading ever more complex interactions with regulators. This change is especially significant because it comes at a time when businesses are moving away from simply complying with regulations to establishing a more proactive relationship with regulators. In this new relationship, companies seek to ensure up front that they correctly understand regulations, and may sometimes even help to shape them, rather than simply responding to queries and issues that arise retrospectively. These developments highlight the fact that, when the risk function is run the right way, it is now a central part of the business rather than an afterthought. It is also apparent that the risk model has matured significantly, with an increased emphasis on strategic aspects.
Apr-Jun 2022 Issue
FTI Consulting