| Financial Services Authority publishes a review of UK insurers’ risk management practices A new FSA report summarises the findings of a recent survey of risk management practices and procedures in the UK insurance industry. This survey was designed to provide the FSA with information about high-level risk management practices following its risk assessment visits in 2002. The main findings in the report are:
* Some firms have designed risk management systems more for the purpose of meeting the terms of FSA guidance than for delivering effective risk management. In some firms, risk management systems are regarded as a compliance requirement, rather than core business processes. * Although risk functions are being developed, they are often located within a business line. This means that it is difficult to achieve an adequate separation between employees involved in taking on or controlling risk day-to-day and those involved in identifying and analysing risk. Risk functions with an independent reporting line can better provide an objective assessment of risks and an effective challenge to business functions. * Many firms have not clearly defined their appetite for, or tolerance of, risk. The ability to assess whether risks faced lie within an appetite for which resources are adequate is easier when this appetite is defined. Only about 50 percent of the sample have set out risk appetites, which are usually expressed in qualitative terms and which are seldom linked to an amount of capital needed to support them. * The quality and frequency of risk information for governing bodies varies significantly from firm to firm. In 25 percent of firms surveyed, management information does not include any analysis of the significant risks faced. Where risk information is provided, performance indicators relevant to particular risks, assessments of the availability and effectiveness of treatment and comparison of risks against risk appetite are seldom included. * The use of models for underwriting, reserving and capital requirement is increasing, and we expect that some firms will use models to support their individual capital assessments. However, the credibility of these results is reduced where these models are not used by the business for performance assessments, where data is not collected to validate the results, and where the risks modelled are not reconciled to the findings of risk assessment functions. Few firms collect operational loss data for use in models. To read the report, click here.
•Date:
23rd October 2003 •Region: UK •Type:
Article •Topic: Operational
risk |
