Lessons for Insurers (2)

In late 2009,  the The CAS, CIA, and the SOA’s Joint Risk Management Section funded a research report about the Financial Crisis.  This report featured nine key Lessons for Insurers.  Riskviews will comment on those lessons individually…

2. Risk management is most effective at prevention. Failing at prevention results in damage control, which is often expensive and ineffective.

This “lesson” is based upon an old car repair commercial where the mechanic says “You pay me now or pay me later”.

But Loss Prevention is only one of three major goals of risk management.   There is much confusion about the fact that there are really three different things that are all called risk management by different people.

However, many people do not realize that there are really three separate systems involved in those three types of risk management and end up adopting elements of all three systems without necessarily adopting all of any of the three.  That is one of the things that creates much frustration with ERM among general management.

And some ERM systems are not clear themselves about which of the three types of ERM goals that they are trying to accomplish.

Just to be clear, the three goals are:

  1. Controlling the Frequency and Severity of Losses
  2. Managing the risk reward trade-off on a transactional level
  3. Managing the risk reward trade-off on a macro (line of business or subsidiary) level

As you could imagine, completely different people are involved in executing each of the three. And each of these three types of ERM include activities and goals that existed in most firms before the existence of ERM.

Usually, the difference between an ERM approach to these objectives and the pre-ERM approach is two things:

  • A commitment to pursuing the goals consistently throughout the entire enterprise
  • A common definition of RISK and metrics for measuring RISK applied to all risks

Lessons for Insurers (1)

Lessons for Insurers (2)

Lessons for Insurers (3)

Lessons for Insurers (4)

Lessons for Insurers (5)

Lessons for Insurers (6)

Explore posts in the same categories: Enterprise Risk Management, ERM, Risk Management


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