Tuesday, 19 May 2015

Towers Watson's Global ERM Survey - Knowing ERM, Knowing You...

A couple of treats from two of the powerhouses of the 'writing things down' industry on the practical use of ERM to drive decision making, rather than simply accompany it.

Towers Watson are targeting the Solvency II audience (at least on this side of the Atlantic) with a timely release of the results of their 8th Biennial Global ERM Survey. I say the results, as there is no sign of the full survey itself - any closer to their chest, it would be an areola's backpack...

As ever, these kinds of publications oscillate between flannel and insight, so while I cover those below, feel free to read the infographic and call it quits!

General observations from the main press release include;
  • Three-quarters of (the almost 400) respondents say they are viewed as "important strategic partners" by the Board and Executive - I'm less inclined to see that as a mark of superiority, given that risk functions in some firms won't have the ambition or aptitude to achieve that status
  • Implication that some respondents do not have a risk appetite framework in place - very worrying, unless this is just bad wording.
  • Some firms said to be only "...using ERM for regulatory compliance". It may depend on jurisdiction, but I'm not inclined to agree that is even possible.
  • The "ultimate vision" for a firm's ERM capabilities is referred to, which is a brow furrer, even conceptually. TW seem to bundle up risk culture, risk monitoring and risk tolerance into the "Vision" bucket, in case that term takes your fancy.
  • The expression "very strategic approach" appears in print for the first time!
Getting Value from ERM?
- "Kiss my Face"
From the more elaborate Q&A document, we find the main granular material which TW were prepared to publish. Fortunately for readers this side of the Atlantic, the EMEA Director Mike Wilkinson holds sway over much of that conversation, including his tale of the firm who recently had an ERM/Business Strategy-inspired "Aha" moment.

That session contains a fair bit of contention, such as;
  • Asking the questions "What's the purpose of risk management" or indeed the "purpose of your ERM Program" in the Q&A - if these had been directed to the respondents themselves, it would have contextualised a number of the seemingly negative responses i.e. If the purpose of your ERM Program is "don't get shut down", you are probably less bothered about being a "strategic partner"!
  • That the business should "...challenge the risk group to create reports that help them make decisions" - Excel Jockey is hardly the work of a strategic partner...
  • In a similar vein, that insurers are "drowning in data, drowning in metrics" - hardly a new phenomenon, and doesn't give any credit to the critical faculties of employees to filter what they do have.
  • "...many [internal capital] models have matured" - a sharp intake of breath can be heard down at Moorgate!
  • That "...an ERM Program can't properly be assessed until it has been in place for a while" - pretty sure the S&P crowd wouldn't hold off assessing you while you "embed"
Mike in particular does manage to keep a good focus throughout the Q&A on maximising trade-offs between risk and return being the big differentiator between Risk functions who are capable of influencing strategic decision making, and those who are perhaps more likely to be tabling red-amber-green reports tracking the outcomes of decisions which have already been made.

Other strong points include;
  • In the context of Risk Tolerance, how to cater for the discretion required by an insurer's asset managers in handling investment portfolios.
  • Touches on a couple of pieces which stood out in the CRO Forum's Risk Appetite publication last month, namely around the increasing number of measures being used to run businesses other than capital, allowance of movement within risk tolerance levels, and whether firms have effectively articulated their organisation-wide Risk Appetite and Risk Tolerance limits down into its subsidiaries/departments.
One aspect which gnawed at me throughout this reading is the constant referrals to "ERM Programs" - I don't think I am bathing in semantics to suggest that Programs normally start and end, whilst ERM would surely constitute a Framework. You might choose to redecorate the Framework periodically with a Program (Solvency II a prime example), but you wouldn't expect a Program to "mature" or "evolve", you expect it to conclude!


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