Survey of Actuaries Indicates Focus on Systemic Risks and Importance of Corporate Culture When Adopting Enterprise Risk Management

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Apr 13, 2010, 08:00 ET

SCHAUMBURG, Ill., April 13 /PRNewswire/ -- As businesses deal with new risks, reforms, and regulations with banking, healthcare and much more, a new survey of risk experts indicates that enterprise risk management (ERM) is still not fully integrated into organizations' corporate culture. The survey of actuaries working in risk management highlights that 82 percent assert that a holistic approach to risk is embraced by senior leadership within their organizations; however, only 47 percent affirm that ERM is deeply integrated within corporate culture.

The survey was released today in conjunction with the 2010 ERM Symposium in Chicago. Hosted by the Society of Actuaries (SOA), Casualty Actuarial Society (CAS), Canadian Institute of Actuaries (CIA) and the Professional Risk Managers' International Association (PRMIA), the ERM Symposium highlights the importance of anticipating and managing risk in uncertain economic times. It includes information on emerging risks, improving incentive compensation structure and effective management of risk and capital.

"Corporate culture is one of the primary elements in implementing a sound ERM program," said Frank Sabatini, FSA, MAAA, CERA and president of Sabatini Advisory Services LLC. "Organizations that maintain or plan to implement ERM programs need to engage people at all levels, from the board to junior staff, to learn and question. This needs to be a focus, rather than simple execution, so risk can be examined holistically."

Transparency is a reoccurring theme in the survey findings. Nearly half (45 percent) disagree or are unsure that their firm's external risk disclosures to shareholders effectively convey an understanding of key risks. They note that transparency is one of the best reasons for greater disclosure of risks, which can help mitigate litigation, regulatory and reputational risk issues.

The survey also found that systemic risk – known in industry circles but largely new to the general business world – is the second most important issue that executives and boards of directors will face this year. Systemic risk refers to risk that effects an entire financial market or system. As it did last year, financial risk took the top spot.

"Systemic risk, which represents the collapse of the entire interconnected financial system, is one of the preeminent risks of the post-recession era, as evidenced by the system-wide failures that have occurred over the last few years," said Bob Wolf, FCAS, CERA, MAAA. "The financial crisis, as it is called, is really the result of an operational risk crisis that emanated primarily from misaligned incentives and accountability. The actuarial profession is rigorously trained and well-equipped to help businesses and society accomplish the mitigation of this type of event in the future."

Senior management has been the strongest driver of firms adopting ERM, with 71 percent of respondents saying that "senior management request" was a reason for ERM implementation. This is in part because firms are assuming more risk in 2010, with 13 percent planning to do so now versus six percent in 2009. However, when asked if boards are also becoming more involved with ERM by implementing risk-adjusted compensation packages, for example, more than 40 percent said they were unsure that was happening or that boards were definitively not more involved. Keeping in line with the increased focus on ERM, 90 percent of respondents had either implemented ERM and begun the ongoing work to refine processes, are currently implementing initial ERM processes or have plans to implement ERM in the future.

The SOA is at the forefront of the ERM movement with its Chartered Enterprise Risk Analyst (CERA) credential. The CERA is the most comprehensive and rigorous demonstration of ERM expertise available. CERAs are the ideal professionals to help organizations implement ERM programs and ensure their corporate cultures enable continued ERM growth.

"CERAs are helping businesses better understand risk and can lead an organization's risk strategy," said Sabatini. "The CERA credential has been adopted by 14 global actuarial organizations, only strengthening CERAs' global role in risk management."

The results were developed from an online survey of 319 members of the Joint Risk Management Section, which is comprised of members from the SOA, CIA and CAS. Respondents came from a mix of insurance, consulting and management services, financial services, healthcare and government organizations, based in the U.S. and Canada.

About Actuaries

Actuaries bring a complex future into focus by applying unique insight to risk and opportunity. Known for their comprehensive approach, actuaries enable smart, more confident decisions.

About the Sponsoring Organizations

The CAS fulfills its mission to advance actuarial science through a focus on research and education. Among its 5,000 members are experts in property-casualty insurance, reinsurance, finance, risk management, and enterprise risk management. Visit www.casact.org.

The CIA is dedicated to serving the public through the provision, by the profession, of actuarial services and advice of the highest quality. Visit www.actuaries.ca.

The SOA is an educational, research and professional organization dedicated to serving the public, its members and its candidates. The SOA's mission is to advance actuarial knowledge and to enhance the ability of actuaries to provide expert advice and relevant solutions for financial, business and societal problems. The SOA's vision is for actuaries to be the leading professionals in the measurement and management of risk. To learn more, visit www.soa.org.