Enterprise risk management (ERM) can be like eating your vegetables or doing homework as a youngster: Most kids didn’t particularly enjoy it; they only did it because parents and teachers made them.
Executive SummaryWhether it's to fulfill ORSA requirements, boost credit ratings or comply with SEC regulations, the vast majority of insurance companies establish ERM and go through the motions each year because it's something they have to do. But ERM doesn't have to be something you just check off a box. When the goal or scope of ERM moves beyond preventing failure and complying with regulations to include strategic planning and execution, decision-making, and ensuring the company's success, it can transform from being a cost-center into a valuable tool.
While these necessities of childhood change as we grow into adults, the fundamental concept does not. There are things we don’t take pleasure in, like renewing our car registration or getting a root canal. We just do them because the consequence of inaction is much worse.
ERM can be much the same way for insurance carriers.
Whether it’s to fulfill ORSA requirements, boost credit ratings, or comply with SEC or stock exchange regulations, the vast majority of insurance companies establish ERM and go through the motions each year because it’s something they have to do rather than want to do.
To many carrier executives, ERM is just that—a nuisance to check off the list and move on. As Norman Marks explains in his book “World Class Risk Management”: “…when risk management is implemented in response to regulation, it becomes a cost of doing business instead of a way to do business more effectively.”