Insurers are rethinking their commitment to enterprise risk management (ERM) as Solvency II drifts further into the distance but this could bring new risks.
The shine of ERM has faded for many insurers and as budgets are finalized for 2013, the spending and staffing for ERM is dropping.
But this shift could be a leading indicator for future problems:
- Less coordination of risk taking could lead to unknown concentrations of exposures.
- Risk appetites are not updated as the business and risk environment changes and are therefore ignored in the business planning process.
- A return to (or continuation of) reliance on the rating agencies to set the primary parameters for insurers’ businesses.
- A slower and less coordinated response to emerging issues.
- Unchallenged predictions of low risk for a new proposal that ends up being drastically underpriced and highly successful.
The irony is that those insurers who were less committed to satisfying Solvency II, or the rating agencies’ calls for ERM, may have developed an ERM program that actually helps them to achieve their business objectives and will be less exposed to this risk.