Risk management and culture not perceived to help achieve core strategic objectives

Risk management and culture not perceived to help achieve core strategic objectives: just as compliance exercise.

Extract from Chartered Insurance Institute – Policy and Public Affairs:

This Thinkpiece looks at some preliminary findings from a CII member survey, drawing some conclusions regarding cultures and attitudes towards corporate risk management in the insurance sector. It is part of a wider study on risk culture in insurance.

Risk culture has emerged as something of a hot topic since the banking crisis, resulting in major regulatory initiatives across financial services, such as Solvency II in insurance.

It would seem that, for the insurance sector especially, risk culture and risk management has become a major compliance activity. But is this where corporate risk management should reside?

The CII joined several other organisations in supporting a major research project by the London School of Economics and the University of Plymouth to better understand the drivers and practices of risk culture in the insurance sector.

– Much attention has been paid to problems of culture within financial organisations, and to “risk culture” in particular. Both financial institutions and their regulators remain unsure about what risk culture is, or how to manage it effectively.

– This article summarises the preliminary findings of a major London School of Economics/University of Plymouth research project into risk culture, part-funded by the CII. It aims to understand what financial organisations are actually doing about risk culture and why, as well as the practical challenges they are facing and how these might be overcome.

– Preliminary practitioner interviews suggest the presence of work streams and change programmes around the risk culture theme, but little consensus about what this means or how best to manage it. There was a strong focus on improving risk information infrastructure and reporting.

– CII member survey research points to three broad trends: most firms have a risk culture programme under way; these programmes are largely driven by regulatory initiatives such as Solvency II; there is limited evidence of drivers that are not related to compliance, such as error reduction, external disclosure and quality improvement. Overall, firms appear to be becoming more conservative. Risk management/culture programmes are intensifying this trend.

– Survey results suggest that in terms of drivers, risk management is viewed as a hygiene activity to deal with negative outcomes, or to handle what is required by regulators. It is not seen as a means of creating potentially profitable opportunities; this is regarded as a secondary concern.

Overall, the survey of CII members suggests that risk culture change programmes and risk management practices are both directed at regulation. Risk management is primarily viewed as a compliance exercise, rather than something to help firms achieve core strategic objectives.

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