Effectively Managing Risk: A Guide for Insurance Companies

In the insurance industry, risk is a constant presence, menacingly threatening to disrupt operations and challenge profitability. Insurance companies play a crucial role in safeguarding the financial well-being of their clients by offering protection against life’s uncertainties. But who ensures the protection of insurers from the risks they encounter? Implementing a comprehensive risk management program, with a focus on risk management for insurance companies, is an unfailing strategy to shield their assets and guarantee enduring success.

In the realm of insurance firms, risk management should not just be a mere precaution or a tick-the-box compliance exercise, when done well, risk management can uncover efficiencies & opportunities and enable insurance firms to take the right risks to grow the business and meet their strategic goals.

In this blog we look at the unique risks facing insurance firms, explore why spreadsheets & manual processes are not an efficient way to manage risk, and explain how to standardize & automate your approach to risk – to get a holistic view across every department.

What Kind of Risks Should Insurance Firms Be Managing?

Running an insurance firm is a balancing act. Firms must bring in enough money in policy premiums to ensure they have enough funds in the bank to pay out on any claims that come to fruition. One unexpected natural disaster can result in a sudden influx of claims putting profits under pressure.

Due to the way insurance firms are run & regulated, they face their own set of unique risks including:

1. Underwriting Risk: The potential for losses due to inadequate pricing, inaccurate risk assessment, or unforeseen events that lead to high claim payouts.
2. Market Risk: Market fluctuations, including changes in interest rates, foreign exchange rates, and equity markets, can affect the value of investment portfolios held by insurance companies.
3. Credit Risk: Insurers risk falling into debt if policyholders do not pay premiums or reinsurers fail to meet their commitments – firms must put controls in place to manage this risk.
4. Catastrophic Risk & Natural Disasters: Insurance companies are exposed to large losses in the event of natural disasters, extreme weather events, major accidents, or other catastrophic events covered by their policies that could cause an influx of claims – affecting profits.
5. Regulatory & Compliance Risk: Changes in regulations, non-compliance with industry standards, or failure to adhere to legal requirements can lead to financial penalties & reputational damage. This is a critical concern in an enterprise risk management framework.
6. Reputational Risk: Poor customer service, negative publicity, or ethical issues can damage an insurance company’s reputation and lead to a loss of business.
7. Operational Risk: This includes risks related to internal processes, systems, and human error that could result in financial losses or business disruptions.
8. Fraud Risk: Insurance companies are susceptible to fraudulent claims, which can lead to increased claim expenses and impact profitability. Addressing this is a key component of risk management for insurance companies.
9. Technology Risk: Reliance on technology exposes insurance companies to cybersecurity threats, data breaches, and IT system failures.
10. Emerging Risks: The insurance industry must be prepared to address new and unforeseen risks that emerge due to changes in technology, societal behaviour, or economic conditions.

It’s essential for insurance companies to regularly assess and update their risk registers to stay ahead of potential risks and develop appropriate risk management strategies. Risk management is a crucial aspect of the insurance industry, it must ensure financial stability, protect policyholders, and maintain the overall health of the organisation.

And with new risks emerging at a regular pace, insurance companies have a long list of scenarios that could potentially impact the daily running of their organisations, keeping them up at night.

Take control of your risk management challenges. Request a demo and discover how our solution can help your insurance company achieve strategic success.

Barriers to Effective Risk Management

A major barrier to effective risk management for most insurance companies is the existence of siloed data & processes and the use of spreadsheets with no formalised risk framework. This disjointed approach leads to organisational fragmentation and inaccurate risk data.

Many insurance firms are still using spreadsheets to manage risk. And while it can be a good place to start for some smaller businesses, as organisations expand, it becomes unmanageable. Complex processes like risk management require multiple users, complex data mapping, control monitoring, automation, strict data governance, and in-depth reporting & analytics – and spreadsheets simply don’t offer this level of functionality.

“When risk data is contained in a spreadsheet, it’s just data; but when risk data is used in a GRC tool it becomes insights and decisions”.

Some slightly more mature organisations will be relying on a mixture of legacy risk platforms & manual processes. Due to company mergers & acquisitions, and disconnected departments & business units across different sites, organisations can be left with a number of different systems & processes that all manage risk differently with no consistent framework. This makes it impossible for management to get a holistic view of risk – making it difficult for them to decide where to allocate budget & resources to reduce the most critical risks.

Many insurance companies relying on these disjointed methods tend to have adopted a compliance-based approach to risk management. Their process ensures they are providing enough information to regulators to prove that they have taken sufficient steps to mitigate risk in line with regulatory requirements – but it is not necessarily adding organisational value.

Insurance Risk Management Framework

When it comes to devising a response to risk when relying on fragmented tools, each function is somewhat self-serving, absent of the right insight across the to know the right thing to do for the whole enterprise. This prevents the risk team from getting a consolidated view of risk. This disjointed approach can create cultural issues that stifle innovation & improvement. The fear of falling foul of regulations or ‘taking risk’ can drive risk-averse behaviour – leaving staff following the audited process, rather than challenging in areas when efficiency gains could potentially be achieved.

Managing risk in silos using manual processes like spreadsheets & emails can lead to a slew of other issues as well, such as duplication of risk mitigation efforts, gaps in risk analysis, inaccurate risk data, a lack of a process to aggregate critical risks, and limited sharing of risk information across organisations – all of which can make it difficult to understand and manage the key risks confronting a company. While insurance companies can operate in distinct business units, a single risk can affect many different parts of the organisation. An integrated approach to risk management not only provides greater insight, but greater efficiency too.

10 Signs That Insurance Companies Should Move From Spreadsheets to Risk Management Software 

1. The risk register is becoming messy, due to inconsistent data entry and incomplete fields.
2. Risk assessment results are not captured centrally – and it is difficult to analyse the findings and implement the appropriate actions.
3. Individual teams and departments lack accountability for risk.
4. The risk team spends too much time on manipulating data and creating reports, rather than analysing data and making process improvements.
5. There is no holistic view of risk across different departments and sites.
6. Risk management is an isolated discipline and is not connected to live operational data.
7. There is a desire to map risk to your enterprise performance & strategic objectives – and spreadsheets don’t allow for the complex mapping required.
8. Teams struggle to capture risk treatment actions and route cause analysis and tie them back to risks or incidents.
9. Risk monitoring is done manually, leaving room for human error and delays on detecting excessive risk.
10. The risk process is predominantly focused on reducing risk – rather than identifying risks that are worth taking and providing the Board with data to inform strategic decision-making.

Breaking Down Silos & Automating Risk Management

Implementing a modern GRC platform that offers best-practice risk management capabilities can help insurance providers to establish a consistent risk framework, streamline & consolidate risk management processes, and build a consolidated view of risk. These intuitive solutions enable organisations to set up a comprehensive on-line risk register, where multiple departments can directly log risks. 

Teams can utilise online risk assessment templates & questionnaires to calculate the likelihood, severity, and impact of risk, and to generate risk ratings. Operational data can be pulled into the solution from other systems & data sources via API connections – enabling teams to set Key Risk Indicators (KRI’s) and define risk tolerances based on real data. 

See Risk Management in Action: Request your demo and discover how we can help safeguard your insurance company’s future.

Risk Intelligence: From Reactive to Proactive with Analytic Platforms

This empowers organisations to define a risk appetite framework & operate within it. Once the system is established and the risk register is completed, teams can set controls to monitor risk on an ongoing basis and automated notifications & alerts are sent when the degree of risk reaches an intolerable level. Teams can run instant reports and view live dashboards to get a complete overview of their risk profile and drill down into the detail to address problem areas.

Software engages the entire organisation in the risk management process and ensures all stakeholders across the business can log risks and take ownership of risk. This makes risk management more accessible, accountable, trackable, and resolvable – providing visibility to leadership teams – and the automation saves time and valuable resources. More advanced organisations use risk management platforms to uncover potential opportunities for growth. Instead of simply using the tool to mitigate risk, they use the analytics capabilities to weigh up potential outcomes – enabling them to take a calculated level of risk in pursuit of their strategic objectives.

The Advantages of a Consistent Approach to Risk

Regardless of an organisations size, the responsibility of governance, risk, and compliance lies with many people and teams across multiple departments, often in multiple locations. If these departments operate in silos – risk oversight across the entire organisation will be clouded.

ERM platforms broaden the reach of risk management providing a structured process that staff can feed into in a timely manner. This supports risk teams to collect a whole host of risk data from various teams across different departments in a consistent manner. This extensive pool of data allows risk teams to spend more time analysing risk data and looking for ways to reduce risk – rather than spending time on data manipulation, admin, and manual reporting.

Many insurance companies are currently re-thinking the way they view risk and are beginning to realise their risk portfolios are inherently interconnected and that while heightened visibility helps, it certainly is not enough, and must be backed up with plans to resolve risks and reduce the likelihood of any future risks. These stringent processes will prepare them to face new risks as they unfold, and to exploit opportunities that will inevitably surface in the future.

Technology-Driven Risk and Compliance Management

By embracing risk management technology and being prepared to react to unforeseen events – the insurance sector can streamline risk & compliance requirements and ensure profitability, no matter which risks become a reality.

The automation of the risk management process allows real-time reporting that will assist the Board to ensure that its risk appetite is fully adhered to throughout the organisation.  It fosters a collaborative approach, helping staff to understand the part they play in mitigating risk, and allowing them to feed into the process in a timely way. Using risk management technology ensures that risks across all areas of the enterprise are identified and evaluated – in order to ensure appropriate risk mitigation controls are in place.

It provides oversight for managers – enabling them to detect problems early and provide and audit trail of proof to regulators – demonstrating that the institution is doing all it can to mitigate risk and operate in line with the pre-agreed risk tolerance. Software also supports organisations to detect and maximise opportunities and guides risk-based decision-making – enabling leaders to plan budget and resources.

Staying on top of new and emerging risks requires a powerful and flexible risk management solution. The Camms platform can be configured to meet the specific needs of the insurance sector. Request a demo to see our industry recognised, comprehensive risk management solution in action.