UK insurers suffer from lack of risk culture at board level

Many UK insurance companies are failing to embrace a board-endorsed risk culture with more than 60% of executives reporting that chief risk officers or heads of risk are absent from their boards.

Those were the findings of a survey by global consulting firm Protiviti, which revealed that despite significant investment in overhauling enterprise-wide risk management practices since the financial crisis of 2008, senior insurance industry executives have warned that challenges still remain in realising a fully effective ‘risk culture’ at insurance firms.

The study found that while insurers were continuing to invest in risk technologies to help meet compliance demands, a general ‘tick-box’ attitude to risk means UK insurers are missing out on the enterprise-wide opportunities presented by regulation such as Solvency II.

According to the research, just 56% of senior insurance executives report that their board provides executive management sponsorship and ownership of their firm’s risk management procedures. Only 1 in 5 (22%) executives surveyed say their firms are using risk-based return on capital measures in business planning, while under half (48%) report that the board always sets risk appetites. Just 19% of survey respondents believe the frequency and quality of board discussion around risk management is “strong”, with more than half (55%) describing it as “fairly strong”.

Protivit UK managing director Peter Richardson said: “The attitude towards the risk function seems to be that it is a regulatory requirement, rather than a source of added value to the company. It’s worrying that fewer than one in four of those we surveyed saw value-add in the risk function.

“The need to embed risk culture in insurance organisations may be widely recognised, but Protiviti’s research shows there is a long way to go before boards regard it as more than simply tick-box compliance, though one positive note is that the majority (67%) of respondents report that their firm’s risk culture is being addressed as part of their firm’s training programme.”

A total of 77% of senior insurance executives report that their board now “owns” their firm’s Solvency II programme overall, with 1 in 4 (27%) report that their board has only “sometimes” been involved in actually running their firm’s ORSA process. Only 1 in 10 say their boards are using the output from their internal capital models in decision-making – another fundamental principle of the Solvency II regime.

CROs in particular report on-going investment in risk management technologies that are set to continue to meet industry best practice as well as regulatory demands. Half (50%) of the CROs said that the level of their firm’s automated risk processes are set to increase as they look to technology to improve their practices and reduce cost. Almost two-thirds (63%) report that the costs of dealing with compliance have become “extreme”.