Grant Thornton’s ‘Risk Appetite’ study says risk appetite framework progress at detriment of operational risk management
Insurers need to balance their risk management better in order to successfully deliver their business plans within acceptable risk limits.
That is according to business and finance advisory firm Grant Thornton, whose inaugural ‘Risk Appetite’ study canvassed the views of 43 chief executive and managing directors from leading London insurers.
The research found that though significant progress has been made by insurers in developing their risk appetite frameworks, there was evidence that this had possibly been to the detriment of focus on managing operational risk, which has been known to contribute to the failure and collapse of insurance companies.
Grant Thornton’s risk and capital management practice leader Stephen Kelly said: “Improvements that have been made have been driven by regulation such as Solvency II, which has caused insurers to introduce quantifiable risk measures. Operational risk, however, remains a particular challenge as it is inherently difficult to quantify. This is due to a lack of reliable historical data and the prevalence of human involvement and potential for human error.
“We are urging insurance businesses not to lose sight of operational risk by ensuring that risk management strategies have been independently challenged and have appropriate balance in their approach, addressing all the risks to which the firm is exposed. Grant Thornton’s extensive work with clients to date shows that the winners will be those who risk manage across all their risk profile spectrum.”
Grant Thornton intends to conduct a further Risk Appetite market study later this year, with the aim of providing a benchmark for best practice.
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