ROLE OF INSURANCE
MANAGEMENT IN ERM
The 2nd International Istanbul Insurance Conference
Insurance Practitioners’Association
Dr. Tamer Saka, Managing Director of Willis London
01/10/10
AGENDA
1. What is Enterprise Risk Management ?
2. Why is Enterprise Risk Management Important?
3. Process of Risk Management
4. Role of Insurance Management in ERM
2
Risks are embedded throughout the businesses.
‘Playing safe is probably the most
unsafe thing in the world.
You cannot stand still. You must go
forward. ’
Robert Collier, 1885 – 1950
3
Risk management failure has been the cause of most recent
industry losses.
 Missing the underlying issues – management problems, control weaknesses, failing models –
can lead to adverse financial impact and reputational damage to the Company.
4
Enterprise Risk management is a ...
“process, effected by an entity’s board of directors, management
and other personnel, applied in strategy – setting and across
enterprise, designed to identify potential events that may affect
the entity, and manage risk to be within its, risk appetite to
provide reasonable assurance regarding the achievement of
entity objectives.”
5
Elements of Enterprise Risk Management
 A process, ongoing and flowing through an entity
 Effected by people at every level of an organization
 Applied in strategy setting
 Applied across the enterprise, at every level and unit, and includes taking
an entity level portfolio view of risk
 Designed to identify potential events affecting the entity and manage risk
within its risk appetite
 Able to provide reasonable assurance to an entity’s management and
board
 Geared to the achievement of objectives in one or more separate but
overlapping categories – it is a means to an end, not an end in itself
9
Why is Enterprise Risk Management Important ?
ERM makes your business more ‘visible’.
Are we taking the right risks?
Are we taking the
amount of risks?
right
Do we have the right
processes to manage risks?
6
Why ERM ?
Are we aware of our risks and do we prioritize them?
Are we taking the right
risks?
How are our risks related to our targets and goals?
Do these risks add value to our business, bring in competitive advantage?
Do we recognize that business is about taking risks and do we make conscious
choices concerning these risks?
Are we getting a return that is consistent with our overall level of risk?
Does our organizational culture promote or discourage the right level of risk taking a
Are we taking the right
amount of risks?
activities?
Do we have a well defined organizational risk appetite?
Has our risk appetite been quantified in aggregate and per occurrence?
Is our actual risk level consistent with our risk appetite?
Are our risk management processes aligned with our strategic decision-making
process and existing performance measures?
Do we have the right
processes to manage
risks?
Are our risk management processes coordinated and consistent across the entire
enterprise?
Does everyone use the same definition of risk?
Do we have gaps and/or overlaps in our risk coverage?
Is our risk management process cost effective?
7
ERM is The Most Cost-Effective Strategy for…
 Improved Business Performance
 Optimize Risk Management Cost
 Competitive Advantage
 Reduced Surprises and Losses
 Regulatory Compliance
 Protected Reputation and Brand Image
 Aggregate Risk Transfer and Acceptance
 Management of Enterprise-wide Risks
8
ERM Scope
Business
Continuit
y
Social
Respon
sibility
Insuranc
e
Reputatio
n and
Brand
Mng.
Environ
ment
Health
ERM
Engineeri
ng
Standard
s
Crisis
Manage
ment
Legal
and
Complian
ce
Workers
’ Health
and
Safety
Security
Financia
l Risk
Manage
ment
Informat
ion
Security
10
Critical Success Factors
 Be empathetic to Business People, Help to implement actions
 Focus on both “opportunities” and “threats”, not only on threats!
 Recommendations must be practical and down to earth
 Focus on quantifiable and easy to understand benefits first (insurance, IT security, brand etc.)
 Systematic and continuous, disciplined risk management activities
 Try to show your value in terms of $
 Implementing risk management based performance measurement
 Acceptance and commitment from the mid-level managers
10
Risks We Face Are Enormous
Finansal Risks
Operational Risks
External Risks
Customer Satisfaction
Foreign Currency
Human Resources
Brand Management
Competitor
Interest Rate
Product/Service Dev.
Information Technology
Legal and
Efficiency
Information Security
Capacity
Pricing
Credit
Process Mng.
Employee Commitment
Shareholder
Financial Instruments
Partnership
Tax
Political
Concentration
Authority and Limit
Business Interruption
Supply
Insurance
Prod/Serv.Quality
Performance Management
Customer Trends
Equity Price
Env. Health
Communication
Change Mng.
Liquidity
Investment Portfolio
Commodity Price
Workers’ health and Safety
Compliance
Economical
Natural Disasters
Strategic Risks
Investment Evaluation
Budget and Planning
Business Model
Organizational Structure
Industrial
Business Portfolio
11
Process of Risk Management
1
2
3
13
Alternative Risk Management Strategies
Exploit
Transfer
Allocate
Insure
Diversify
Reinsure
Expand
Hedge
Create
Securitize
Redesign
Share
Reorganize
Outsource
Price
Indemity
Arbitrage
Retain
Influence
Accept
Avoid
Reprice
Self Insure
Divest
Prohibit
Offset
Plan
Stop
Target
Reduce
Screen
Eliminate
Disperse
Control
13
Insurance Risk Management
RISKS
CLAIM
COVERAGE
14
Insurance Management as a Part of ERM
Step-1 Developing Common Risk Universe and Risk
Management Policies and Procedures
Step-2 Identification of risks which organization currently
faces (Internal-External, FinancialOperationalStrategic, Pure-Speculative etc)
Step-3 Identification of Current Level of Risks (Exposure,
Volatility, Probability, Impact, Time Horizon,
Correlation, Capital, Business Plans…etc) as HighMedium-Low or Acceptable-No acceptable etc.
Step-4 Defining of Risk Tolerance Levels
Step-5 Defining and Analyzing of the Gap Between Current
Level of Risk and Company’s Risk Tolerance Levels
Step-6 Developing of Risk Management Solutions to be able to
reduce gaps to desire levels (Cost of Risk & Benefit of
Solutions)
14
Insurance Management as a Part of ERM
Step-7 Defining of needs of Insurance types (All Risk PD/BI,
Liabilities, Marine&Cargo, Terrorism, Theft…etc)
Step-8 Defining of Basic Elements of Program Structure (Values,
Limits and Retentions) in line with outputs of Steps 4
and 6.
Step-9 Defining of Wordings (Terms and conditions and clauses)
Step- 10 Selection of Insurer (Industry Rating, Claims Settlement
ability, Sustainability of the company, Service levels &
infrastructure etc)
Step-11 Choice of Intermediary (Representation of the insurance
market, Knowledge of insurance amongst all industry
segments, Service levels & infrastructure,
Transparency and Trust…etc)
Step-12 Issuing Individual Policies
Step-13 Continuously Review and Monitor. (Existing Risk Control
Measures Review. Risk inspection Risk Audit
14
Insurance Management as a Part of ERM
STEPS 1 To 6 are relatively new
perspective to managing insurable
risks as a result of developments in
ERM
STEPS 7- 13 Traditional approach
14
Conclusion: Effective ERM can help organizations to;
1- better identify and prioritize risks
2- better link between risk management and insurance
management
3- better risk management coordination between different
locations, business units or departments
4- better understand “Aggregated Risks Exposure”
5- develop integrated insurance programs
6- have a systematic approach to manage insurances
7- saving money by better understanding risks and avoid
unnecessary policies and create firm wide policies.
8- achieve lower P/L ratios
9- increase over risk ownership cross the organization
10-have better risk profile and have much better relationships
with Insurance Markets
14
Thank You …
Dr. Tamer Saka
Managing Director
Willis London