Do as I Say - How do we confirm that business decisions are being made in line with ERM vision?
Posted on 01-07-2009 | 0 comments
This relates closely to some of the discussion below around senior management’s understanding of models. For ERM to be useful, senior management needs to fully buy into the ERM vision, and what it means for their business models. If it identifies economically non-viable business policies, senior management needs to be willing to listen and learn from those insights. In the global insurance sector, this is happening, but it takes time, and some firms will embrace this more quickly and fully than others.
This can be a challenging process – it is not an easy message for ERM to take to the Board when ERM believe that the firm’s most successful product is loss-making, or that the firm is inadequately capitalized. These implementation challenges quickly move from intellectual and technological to cultural and political.
Fundamentally, for business decisions to be fully aligned with ERM, there needs to be a completely holistic and consistent approach to assessing market-related risks and costs in all product lines and in all forms of market risk. Management compensation and structure then needs to be aligned to these metrics as well as defining what exposures MUST be escalated to the boardroom table.
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