Insurance companies know how to protect their clients and their assets, however, maintaining their solvency and reputation over time is a challenging effort given the wide variety of events and risks to which they are exposed. It is important to note that risk constitutes the reason for being insurers and reinsurers, and its proper administration allows them to provide their valuable services to the community.
In this context, risk refers to any possibility of loss or any other adverse event with the potential to interfere with the organization’s ability to meet its strategic objectives or that could jeopardize its solvency; Hence, risk management is essential in the management of any company.
Business Risk Management in an insurance company is a strategic process that integrates the organization’s processes and provides a general framework to manage its risks through their identification, evaluation, control, and monitoring; all this in order to facilitate the making of appropriate and timely decisions in the organization.
The interest and importance of enterprise risk management is driven by the need for companies to be able to effectively sustain their operations over time and achieve their strategic objectives. Other forces also come into play, such as the development of new technologies, disruptive business models, and the need for shareholders and investors to ensure proper management of their organizations and obtain fair returns.
This is why regulators worldwide have formulated recommendations and regulations so that companies have solid risk management practices, recognized internationally, such as Solvency II, and in this way ensure that they operate prudently to avoid systemic effects. to the rights of the insured and in general to the insurance market. In Latin America, countries such as Brazil, Chile, Colombia, Costa Rica, and Peru have already implemented, under regulations, risk management and solvency models for the insurance market.
Risk management activities are often ad hoc, informal, uncoordinated, or primarily focused on nominally complying with existing regulations, and as a result, strategic and emerging risks that are most likely to affect the organization’s success in the future are overlooked. the long-term. Internally, this vision generates resistance in different areas of the company, since risk management is usually considered a bureaucratic process without a real contribution to the operation.
Furthermore, a complete and robust risk management process provides the organization with the tools it needs to identify, manage and minimize the negative impacts of risks; as well as to perfect the organization’s growth and profitability strategies. An organization’s chances of success increase when it constantly evaluates its strategy to address potential challenges and then creates structures to address them.
Progressive risk management also ensures that high-priority issues are handled efficiently and timely. Leadership is armed with the data it needs to face adverse events without major surprises and to make sound strategic decisions.
A successful risk management process is embedded in the culture of the organization, as it provides a continuous flow of information that serves as a basis for establishing priorities in the allocation and use of resources and for the constant improvement of processes and performance. operation in general.
Finally, efficient risk management allows companies to carry out their
activities with risk levels consistent with their operating capacity and capital adequacy; which in turn impacts their reputation and access to capital or financing, taking into account that, to obtain and maintain a good risk rating, all aspects of an appropriate risk management system are considered.
In summary, according to what is stated by the International Organization for Standardization (ISO) in its 31000 standard, the characteristics and benefits of a Risk Management System can be summarized in the following principles:
Risk management:
- Creates value
- Is integrated into organizational processes
- Is part of decision-making
- Explicitly addresses uncertainty
- Is systematic, structured, and used in a timely manner
- Is based on the best information available
- Is tailored to the organization
- Integrates human and cultural factors
- Is transparent and inclusive
- Is dynamic, iterative, and sensitive to change
- Facilitates continuous improvement of the organization
