Yet another article on ERM

Here in an excerpt from an article on ERM which I published in the Oct 2010 issue of IRDA journal…

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How to successfully implement ERM?

The following are some critical points which should be kept in mind by any organisation that sets out on the endeavour to implement ERM.

Objectives and goal setting: It is important to define the scope of the initiative and precisely record the key objectives and how they align to the strategic goals of the firm. The measures for each one of these objectives and the factors which determine the success of the initiative should be defined at the outset.

Identify & tweak a framework: Identification of a suitable framework and tweaking it to suit the specific needs on hand is very critical to move ahead with ERM.

Empowerment of CRO: Getting the role of CRO right is another key aspect. The CRO should be adequately empowered to co-ordinate with different groups and roll out risk related initiatives. The governance and reporting structure should facilitate easy operation for the CRO.

Communication: It is important for the CRO to carry the whole organisation with the ERM initiative failing which the objectives are unlikely to be met. Continuous communication with the organisation is, hence, something which has to be at the top of the agenda all the time.

Technology: A well thought through investment in technology is truly worth when it comes to ERM. The priority should be for a system which talks to various IT applications in the firm and picks up the right data. Priority should be in managing data and having the ability to model and perform complex statistical analysis.

Reporting: The larger organisation and the stakeholders outside would be measuring the success of the ERM initiative mainly through the reporting which comes out of it. Hence, designing efficient reporting mechanisms appropriate for each category being addressed, is another critical step. Whether it is the dashboard for senior management or a mundane report for an external party, care should be taken to ensure accuracy and ease of use.

Review and improvement: Till the time we figure out a perfect way of implementing ERM, constantly reviewing the initiative and refining it appears the only way of achieving the desired goals. The review and revision mechanisms should be defined and incorporated into the project plan of the initiative.

It is no cakewalk

In the current phase when the approach is getting refined and the practices are still evolving, adopting ERM is no smooth ride. But it is an ideal time for insurers to adopt the ERM approach and appropriately re-engineer their data, processes and systems. It could help immensely in the transition to a Risk-based approach to capital which is quickly gaining ground as the optimal way of managing capital and solvency.