10Aug2011

New York State calls for insurers to evaluate ERM functions

Bob Wolf comments on the New York State Insurance Department's call for insurers to evaluate their ERM functions.

By Bob Wolf, SOA Staff Fellow, Risk Management

BobWolf I recently came across an article in National Underwriter that highlights how states are viewing the role of enterprise risk management (ERM). This actuary, for one, is glad to read the New York State Insurance Department has made a call for insurers to be prepared to evaluate their ERM functions. I enthusiastically applaud their initiative on this. Although it may potentially come across as a “compliance” type of procedure, I truly believe this to be a great opportunity for the industry. This initiative underscores many of the efforts promulgated through the NAIC’s solvency modernization and “Own Risk Solvency” projects. I am glad to finally hear from multiple fronts that ERM is indeed being seen more through the lens of the opportunities it presents, versus as a function of mere compliance.

 

Underscoring the CERA as the actuarial profession’s eminent and robust ERM credential, we currently are developing corresponding professional standards of practice to augment the ERM professional’s skill-set with that of his/her corresponding individual duties and responsibilities. This speaks directly to the article’s first bullet in which Matti Peltonen, chief of the Insurance Department’s capital markets bureau notes the need to have a professional with the right credentials in place.

Every company needs such a leader – a chief risk officer – that has the authority to manage a committed team within a company and provide thought leadership and integrity in assessing the ERM culture within their respective company.

The CERA credential is underpinned by the actuarial view of ERM as “value-based” discipline instead of a check-the-box task. Through this framework, actuaries, led by many of the profession’s thought leaders, are driving how ERM continues to evolve today. It is this very “human” element of ERM that is the cornerstone to where the actuarial profession has evolved its actuarial risk models.

The actuarial profession is blending in the realization that most risks that companies, boardrooms and society at large must deal with today are not from some exogenous event, but rather from the decisions and behaviors of people within them. Aligning Incentive compensation with desired performance, and aligning the authority for risk/reward decision-making with ultimate accountability, are two elements I feel are key to any ERM risk assessment within insurance companies and groups.

Insurance regulation has a great opportunity to lead the way, enabling other economic sectors to follow.

All of this reminds me of a quote from Emmanuel Kant – “The best way to predict the future is to invent it.”

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