Clifford Chance
Risk governance in the insurance sector - the role of the CRO and the board
22 September 2011
Insurance companies in Europe need to strengthen the role the chief risk officer (CRO) plays in developing their approach to risk governance if they are to succeed in addressing the myriad risk-based regulatory and economic challenges facing them.
The value of risk governance, which combines risk management at an operational level with a company's overall risk culture and risk profile, has to gain greater prominence, according to the EU-Commission, among insurance companies as they begin to reassess their risk appetite and strategy in light of the rapidly-evolving risk landscape in which they have to operate.
Solvency II and CRD IV, the new regulatory regimes for the European insurance and banking sector, also play an important part in helping to redefine risk management and risk governance for the financial sector.
Many insurers and CROs are currently focused on meeting the compliance requirements of Solvency II, but it's equally important for the broader aims of Solvency II that CROs also become more actively involved in shaping the company's entire risk culture, helping to define risk appetite and supporting the development of effective risk measurement and management.
The European Commission has long recognised that corporate governance, of which risk governance and the role of the CRO are two key components, is a crucial tool for the prevention of future crises.
In its 2010 green paper on Corporate governance in financial institutions and remuneration policies, the Commission suggested that the status of the CRO in a financial institution, including insurance companies, should be enhanced to the same level as the CFO. The Commission also said the CRO and the (supervisory) board should establish close relations.
The Commission set out its views on corporate governance for non-financial services listed companies in a second green paper which was published in April 2011.
In this second paper, the Commission addressed the responsibilities of the (supervisory) board for signing off a company's risk policy and to avoid risk mismatch in relation to risk policy and business policy.
"Risk Governance in the insurance sector - the role of the CRO and the board" was co-authored by Dr Michael Ollmann, Director, McKinsey & Company, Inc., Hamburg.
This article is a translation of an article which appeared in the German journal Börsen-Zeitung on 20 August 2011.
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Risk governance in the insurance sector - the role of the CRO and the board
