Developing An Effective Risk Management Framework for an Insurance Company
Date
2012-09-10
Authors
Gondo, Taurai Michael
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Abstract
This research focuses on the development of an effective risk management
framework for an insurance company. The emerging regulations namely
Solvency II in Europe and Solvency Assessment and Management (SAM) in
South Africa are being produced with the objective of ensuring that the
policyholders and beneficiaries of insurance companies have adequate
protection. The European regulators have produced the Solvency II directive
setting out the principles that insurance companies should follow. As such
the development of an effective risk management framework for an
insurance company is the heart and core of these regulations.
The researcher sent a questionnaire to the respondents to obtain their input
and practical insights to the outcome of the literature review. The views of
the respondents brought into consideration the practicalities associated with
implementing risk management frameworks. The respondents all brought
their wide and diverse experience and skills and critiqued the outcomes of
the literature review to a greater degree of detail. This process has led to a
more robust conclusion on the effective risk management framework for an
insurance company. The researcher sent the research questionnaire to
stakeholders that included people working in the following categories: Chief
Executive Officer, Financial Director, Chief Risk Officer, Compliance Officer,
Partners at Audit, Consulting and Advisory firms and Rating Agencies. The
respondents were chosen from England and South Africa, with an
appropriate representation across each of these categories. The targeted
respondents have all responded and each of these stakeholder groups
operates from different perspectives on a daily basis. As a result, this mix
provides appropriate coverage and balance, and thus the outcomes of this
research have been tested robustly.
The conclusion of the research is that the risk management framework as
identified in the literature review is applicable The components of an effective risk management framework for an
insurance company comprise the following elements: Strategic (risk vision,
objectives, strategy, appetite, tolerance limits, business strategy);
Governance (policy, governance framework and capital integration);
Operational (organisation, culture, processes, inputs (data, models,
methodology)) and Economic (cost benefit analysis, measuring value of risk
management and performance measurement). These conclusions are
consistent with the emerging regulations under Solvency II in Europe and
SAM in South Africa. Given that the emerging regulations are set at a
principles level, the research provides some useful and detailed insights into
the considerations as well as some of the challenges associated with
implementing risk management frameworks in an insurance company.
The key message from the research has been that there is a lot of detail
that should be considered when developing an effective risk management
framework for an insurance company. The main focus areas have been
identified to be: defining the risk appetite, setting the risk strategy, defining
the tolerance limits, organisation, culture, processes, inputs (data, models,
methodologies), implementation and ensuring that insurance companies
derive value from implementing a risk management framework.
Description
MBA thesis
Keywords
Risk, Insurance companies and risk, Risk management