For most insurers, business planning wrapped up a few weeks ago, and chief risk officers (CROs) may or may not have shared their insights depending on their level of influence.
However, what can a CRO do after the decisions have been made and plans set? Willis Towers Watson says, plenty.
The brokerage and risk giant is advising CROs to review their current risk management plan and assess whether changes need to be made, including revisiting prior decisions on which risks to prioritize in the enterprise risk management (ERM) program.
Essentially, the CRO should ask, “Does the ERM program appropriately reflect the business as it is now and will be going forward?” it said.
As the business plan unfolds, Willis Towers Watson outlined eight factors for CROs to consider:
1. Board visibility: After planning, reassess the (risk) tiers so the board is notified of the most important. Stay vigilant as risk preferences may also have changed;
2. Key risk indicators (KRIs), risk measures and risk reports: Ensure KRIs follow the risks that are fundamental to delivering the strategic objectives and shorter-term business plan, which, by implication, incorporate critical solvency and regulatory requirements;
3. Risk mitigation approaches: Changes in the plan could mean that risks will need to be treated differently and different analysis is needed. For example, there may be new products with different exposures or investment decisions changing asset allocations;
4. Review of risk targets, limits and checkpoints: Incorporating targets into the ERM process, settle the limit to provide the level of acceptable deviation from the plan and place checkpoints in between the target and the limit to flag potential issues;
5. Updating of model assumptions: Consider the impact of planning decisions by understanding why the future will be different as well as the potential level of variation and impact examined via stress and scenario testing;
6. Updating model output reports: Watch what the sales reports do: do they favor consistency or relevance; do they target the audience and facilitate better board understanding;
7. Capital allocations: Spend some time considering whether the expected changes to the firm might invalidate some explicit or implicit assumption of the allocation process that’s been used, including diversification. The strategic reaction may be to recommend modification to allocations or to provide additional information about the impact of the existing allocation scheme on reporting of results under the chosen course of action;
8. Projections of future profits and return for risk: With the above changes, you can tentatively develop updates to prior calculations of projected returns on risk-taking. This can also be a helpful way of positioning the CRO to play a more active role in the next planning round.