Best’s Special Report

Insurance Industry’s Rapid Pace of Change Calls for Paradigm Shift

Companies have to continually refine and enhance their Enterprise Risk Management

April 12, 2018 — OLDWICK, N.J.–(BUSINESS WIRE)–Keeping up with the pace of technological change and advancements, the globalization of capital markets, and other macro-environmental changes, means that companies have to continually refine and enhance their enterprise risk management (ERM) programs. As the insurance industry has continued to expand and develop, so too have the potential enterprise-wide risks.

A.M. Best has consistently considered ERM in its ratings evaluation. but in its recently updated Best’s Credit Rating Methodology, ERM is formally recognized as one of the core building blocks, along with balance sheet strength, operating performance and business profile, in developing a credit rating opinion on an insurance company.

‘Appropriate…’

The Best’s Special Report, “Enterprise Risk Management: Behind the Scenes, But at the Fore,” notes that A.M. Best views the majority of its rated U.S. insurers as having an ERM assessment of “appropriate.” A.M. Best has observed meaningful improvements in areas such as operational risk, model validation, cyber risk management and stress testing, as well as a high level of engagement in the industry with regard to modernizing the customer experience. Nevertheless, even though the industry must adapt to new technologies, these efforts do introduce new risks. As a result, A.M. Best considers the process of aggregating these risks and looking at correlations through a robust ERM program a key determinant of a company’s long-term success.

The industry’s move toward more use of data and new ways to analyze behavior open up new horizons in risk management

The industry’s move toward more use of data and new ways to analyze behavior open up new horizons in risk management. In particular, the assessment and mitigation of cyber risk poses myriad challenges for insurers. Cyber risk brings insurers’ operational risk to the fore, and for those insurers underwriting cyber risks, a focus on coverage limits and aggregation risks from industries is critical. Insurtech and fintech innovations and the growing use of third-party vendors for data analytics add layers of cyber and infrastructure risk, requiring that companies expand and enhance their ERM. A.M. Best views cyber risk as the next frontier for ERM and a top priority for insurers.

 

To access the full copy of this special report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=272589.
James Gillard, A.M. Best managing director, credit rating criteria, research and analytics, will present a session titled, “Risk Management and the Financial Strength Ratings Process for Insurers,” at the Risk and Insurance Management Society’s Annual Conference & Exhibition on Monday, April 16, at 12:10 p.m. (CDT) in San Antonio, TX. For a video previewing the presentation, please visit http://www.ambest.com/v.asp?v=rimswalkup418.
A.M. Best is the world’s oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.