There is no question that insurance companies are taking enterprise risk management (ERM) more seriously, but concerns remain around their approach, says Ernst & Young in its quarterly outlook on key trends affecting insurers.
"As companies feel pressure to put ERM in place, many get ahead of themselves," explains Chris Karow, partner, Ernst & Young. "The process of developing a risk appetite can get everyone on the same page, creating the linkage between business strategy, value creation and risk management that can help drive the organisation and its ERM programmes to the next level.
The integration of enterprise risk management with the valuation process is a cornerstone of the principles-based reserves and capital regime, and there are significant opportunities for insurers who act early.
"Companies that investigate and address this interplay early will find themselves ahead of the curve when the regulations change and will be able to take better advantage of the ERM processes they already have in place," adds Tara Hansen, senior actuarial advisor, Ernst & Young IAAS.
The 2004 and 2005 hurricane seasons revealed weaknesses in commonly used catastrophe risk modelling techniques. Among the major revelations, it was determined that the quality of exposure data, especially for commercial lines of business, was insufficient. While 2006 was a quiet year, the memory of Katrina has not faded, and a key imperative for 2007 is enhanced data collection.