Empowering Chief Risk Officers: tools and support

In an era defined by rapid change and unforeseen challenges, the role of Chief Risk Officer (CRO) has never been more critical for any business. The insurance industry has been at the forefront of risk management for many years and Insurance CROs offer a fantastic example for all those looking to juggle the volume and complexity of work required to effectively manage the risks of a business.

In our new series of articles, we draw on our experience and insights from working with Insurance CROs to empower others, helping you maximise the power of your Risk function and build the capabilities required of the role. In part three, we explore the tools and support available to empower CROs.

One of the key challenges facing CROs today is finding time; finding time to process all of the information and the interconnectivity of risks, and finding time to get out into the business and speak to various stakeholders. This challenge was highlighted “time and time” again to us (excuse the pun!) in our conversations with CROs. 

It is also clear that Risk functions need to be looking for ways to improve efficiencies given the plethora of recurrent risk management processes to oversee. A Risk function’s BAU to-do list is long, contributing to activities including quarterly risk assessments, horizon scanning, emerging risk exercises, Own Risk and Solvency Assessment (ORSA) processes, contributing to the Solvency and Financial Condition Report (SFCR), overseeing changes to models, and navigating any regulatory applications (i.e Matching Adjustment).  

In our final article in this series, we focus on the tools and support that great CROs use to sift through this long list of tasks and find the time they need to really understand the business and its risks. 

Tools for insurance CROs

There is huge scope for Risk functions to be automated and tools to be built to support their work. This will leave far more time for the value-adding conversations and analysis. 

CROs need to be embracing models and tools to help them. Our survey highlighted that great CROs emphasise the ongoing desire for two key types of tools: those that deliver automation and those that add new and improved insight.

Add insight

• Developing tools to add insight invariably requires an initial investment. These tools often relate to complex analysis, modelling or analysing large datasets. After all, if the analysis was straightforward, insights would be easy to interpret. 
• Machine learning algorithms (often referred to as AI) will enhance the analytic capabilities of insurers due to their potential to distil complex narratives from vast datasets. Though the Risk function will be able to leverage the advancements of AI, the pricing function is likely to be at the forefront of AI implementation to refine pricing strategies. The oversight of the Risk function is vital in ensuring that the adoption and commercial usage of such burgeoning technologies are aligned with the firm’s risk appetite and regulatory obligations. 
• Reverse stress testing is a tool that can provide valuable insights into potential vulnerabilities. For example, reverse stress testing may be used to explore scenarios such as the magnitude of the interest rate change required to trigger collateral calls that could exhaust the firm’s liquidity reserves. It can also assess the impact of underwriting significantly large new business on the firm’s liquidity position under stressed conditions. Through such analysis, the Risk function not only identifies potential risk exposures, but also facilitates the exploration of strategic solutions to mitigate these risks.

Automate

• Risk functions are already inundated with data-intensive processes. These include quarterly risk assessments, KRI dashboards, and emerging risk horizon scanning. All these processes collect data and present outputs for review. Unfortunately, many of these tasks still rely on manual processes and Excel-based workflows. Great CROs recognise the significant time their teams spend on these processes, yet how little of that time is actually devoted to interpreting results and identifying trends, which is where the value lies. As such, there is a genuine need for CROs to proactively automate tasks wherever possible. In addition, CROs are now leading their teams to build tools to support recurrent risk review processes such as Internal Capital Model validation.

Key takeaways

• Embrace tools: With more and more required from Risk functions, the development of tools to improve efficiencies will be a cornerstone in maximising their value and their team’s productivity. 
• AI shouldn’t be feared: Embracing machine learning and other data algorithms could support risk processes. Learning more about these can highlight opportunities.
• Efficiency matters: CROs should take the time to understand where manual processes are used within recurrent work. Identifying these will highlight where there is “low hanging fruit” to increase efficiencies. 
• Focus on model risk: Model risk is getting attention now for a good reason - building tools to support validation will be essential. 

Support for insurance CROs

Given the enormity of the role, it is impossible for the CRO to be an expert in every domain they need to understand. The great challenge is that while the CRO bears ultimate responsibility for signing off and will be the go-to person during risk incidents, it doesn’t mean they have to bear the workload alone. Building the right team around them is essential. 

The CRO needs to recognise where they can / should delegate, learning to share a lot of the workload without hiding from the responsibility. The CRO needs to build both breadth and depth of expertise within their team so that they can focus on where they add the most value. For the team to succeed, the CRO must trust people, inspire people and invest time in people. The CRO must create an inspirational culture within the team.

Key takeaways

• Depth and breadth: The CRO needs to understand their own gaps to enable them to build a team that fills them.
• Strategic delegation: Having a deputy CRO will provide security, limit key-person risk and add someone else who understands the “big picture”.
• Quality and low turnover: If the CRO is able to hire well, then they will not need to hire as frequently. 
• Investing in People: The CRO should focus on helping their own team grow. The quicker and better the team grows, the easier the job of CRO becomes and the more resilient the business can be.
• Trust and empowerment: The CRO gains strength from a team with deep expertise in specific areas and should not feel threatened by a team with such strengths. The Risk function has specific decision-making powers and responsibilities and a CRO’s effectiveness will come from leading a group whose skills inform decisive risk mitigation actions to achieve strategic goals.

At Barnett Waddingham, we understand the pressures and challenges faced by today’s CROs. Our expertise in developing innovative tools and strategies is matched by our commitment to working closely with our clients; identifying opportunities for improvement and supporting them in achieving their risk management goals. 

As the landscape of risk continues to evolve, we stand ready to assist CROs and their teams in not just navigating these complexities but in leveraging them to drive strategic success. If you’re looking to enhance your risk management practices and position your organisation to weather and take advantage of adversity, we invite you to reach out and explore how we can support you on this journey.

In conclusion

The CRO role is no walk in the park, with significant challenges and a diverse skillset required to do the role justice. Far from being deterred, those who embrace this role and the responsibility that comes with it will find it imbued with excitement, challenge and the unique satisfaction that comes from steering an organisation towards success. A great CRO is at the beating heart of any successful organisation and is helping the business to understand risk and make the right choices. 

But they can’t do it alone. The team and support they surround themselves with need to mirror and complement their diverse skills in order to push the business forward, develop a great culture that values proactive risk management and harness expertise to advance the wider goals of the business.

In an environment of increasing uncertainty, today’s CROs need not only manage risk, but leverage it for strategic advantage. Doing so will mean adopting innovative tools and methodologies, from machine learning to advanced analytics, to enhance risk identification, assessment, and mitigation. Transformational CROs will be capable of shifting organisational mindsets to one where risk management is integrated into every strategic initiative and the incorporation of such informed risk-taking is not onerous, but supported by the Risk function. This, in turn, will help the business to gain a clear understanding of their risk-reward profile and ultimately to guide their organisation to sustainable growth and success.

Barnett Waddingham are working closely with clients to help them on this journey. If you are interested in finding out more, please get in touch.

For specialist CRO resources and guidance, visit the BW Risk Portal.