95% of insurers have identified regulatory risk as the single biggest challenge facing them over the next two years - ahead of operational and financial risk, according to a survey by insurance accountant and consultant Moore Stephens.
The Moore Stephens risk management survey showed that 93% of responses from brokers placed regulatory risk at the top of the two-year agenda, ahead of strategic and financial risk.
It also reported that most firms were aware of the risk management requirements demanded by the regulators relative to their own businesses and based on the responses received, the boards of insurers devote more time to risk management than do the boards of broking companies.
The survey revealed that a high percentage of firms – with insurers once again ahead of brokers – had set up an appropriate risk management framework, including board-level leadership. But two-thirds of respondents admitted that they did not separate risk appetite from risk management in their internal policies and procedures.
Risk management was shown to be in its infancy in many of the businesses surveyed. Two-thirds of all businesses responding had been practising risk management for three years or less. The survey revealed a generally poor level of linkage between risk management and business strategy.
On the basis of responses received, Moore Stephens said brokers appeared to be better than insurers at communicating risk management policy to their staff.
The company said that overall, commercial risk management issues seem to be generally limited to senior managers and audit and risk committees, with only a moderate level of perceived involvement by other staff.
It added: "Generally speaking, risk management seems not to be integrated with reward and appraisal processes, and there is very little evidence of effective self-assessment within firms.
"Overall, there was a disappointing level of recognition on the part of respondents of the true benefits of risk management to improved business performance and strategic planning, rather than just satisfying the regulators. All this indicates the industry is adopting a “tick box” approach."
On the basis of responses received, insurers seemed to be more advanced in their thinking that specialist software could support and help them in the risk management process. Just one of the brokers who responded to the survey acknowledged that software formed a part of its current risk management policies and procedures.
Moore Stephens partner Simon Gallagher said: “Overall, the responses to the survey revealed a reasonably good awareness of the regulatory requirements attending risk management, but inconsistency in properly embedding appropriate systems into the business environment and using those systems to best advantage. These inconsistencies will need to be resolved in view of the FSA's ongoing commitment to overseeing proper risk management implementation.”
