Increasing Authority and Higher Organisational Profiles: 2014 Insurance CRO Survey

No. 55 , February 2015 Increasin g Authority and Higher O rganisational P rofiles: 2014 Insurance CRO Survey1 By Bill Spina rd+ and Cha d Runchey++ While the insurance sector has largely recovered from the economic impacts of the financial crises of 2008– 2009, the risk management landscape remains forever changed. This is nowhere more evident than in the changing stature, authority and vis ibility of chief risk officers (CRO s) across the industry. The crisis a fforded CROs the opportunity to demonstrate their value —an opportunit y man y seize d b y helping to de- risk balance sheet s an d navi gate thei r compa nies throug h the turbulence. T oda y, inten sifyin g and constantl y chang ing regulator y, eco nomi c an d co m petitive challenges means their skills remain in high demand. Indeed, there is a pervasive sense across the industry that risk management (and therefore CROs) have become essential to nearly all a spects of the business. T o understand the changing landscape, Ernst & Young ( EY) insurance risk analysts interviewed chief risk o fficers and senior risk executives from more than 20 North American insurance companies.2 Collectively , the companies have sign ificant business operations in all major sectors of the insurance industr y, including property and casual ty and life business. Furthe r, respondents came from both mutual insurance and stock companies and from o rganisations under different regulatory regimes. W e asked these executives questions related to CRO roles, regulation, o rganisation , risk quantification and future outlook. The survey results highlight the ongoing evolution of the role and confirm the increasing impacts of regulations that resulted fr om the financial crisis. The events of a few years ago are still shaping the agendas of many CROs, even as their activities focus to a greater extent on the effectiveness of risk management policies and processes. Further, they are spending more time with their boards and senior business leaders— a fact that underscores the increased impact of many CROs on the business and that industry leaders have become more aware of CRO capabilities. That CROs are involved with more types of business issues is a testament to the value they have been adding to their organisations in the last several years and a harbinger of the opportunities that lie ahead. W e conducted the survey via interviews from October throug h December 201 3 agains t th e backdro p of increasing calls for coordinated regulatory regimes at national and international levels. As such, the answers reflect many of the mega -trends and major develo pments that were taking place in the broader sector during that time. It is particularly important to note that the majority of surveys were conducted before the release of the most recent report from the National Association o f Insuranc e Commissioner s (NAIC) regardin g th e conten t recommende d for inclusion in the Own Risk and Solvency Assessment (ORSA) reports. Similarly , the Federal Insurance O ffice (FIO) released its report about the modernisation of insur ance regulation after most of the surveys were comple ted. It is likely that insurance CROs may be rethinking their views on critical regulatory issues. Several major themes can be seen in this yea r’s results: The expansion of CRO authority CROs are spending more time interacting with boards and senior management. This higher o rganisational profile shows that insurers have on their radars a broader range of issues— including eme rging risks such as cyberterrorism 1 This article is a reprint of the Joint CAS/CIA/SOA Ri sk Management Section Newsletter, December 2014. + Executive director and co -leader of EY’s Insurance Risk Management Practice in McLean, Va. ++ FSA, MAAA, is senior manager at EY in New York. 2 Ernst & Young (2014) Increasing Authority And Higher Organizationa l Profiles: 2014 Insurance CRO Survey