For carrot companies, effective strate-
gies may include:
• Breaking down ERM plan objectives
with small, easy to reach steps.
• Commemorating and celebrating success of individuals and departments in
reaching milestones in the ERM program. A good example would be to show
that a risk ranked as “high” in severity
and frequency in one period has been
reduced to a “medium” or “low” in a
subsequent period due to the successful
implementation of a revised plan of controls, policies or procedures.
• Allocating special time in, or outside of,
board meetings to do Scenario and stress
testing—but with “positive” examples,
such as an opportunity to open a new
branch office or enter into a new line
of business. The exercise can serve the
same purpose as using a more “scary”
example, such as a natural disaster or
financial collapse, but the response may
be more energetic and productive in
embedding the risk assessment message.
• Congratulating people whenever they
appear to be just “getting smarter
Take care to recognize both the posi-
tive and negative motivational drivers
that inspire your organization to act.
Using these factors to your advantage
can significantly propel your ERM and
ORSA efforts forward. Ultimately this
will enable risk managers and their en-
tire organizations to find success and
reap the full benefits of enterprise risk
assessment in 2014 and beyond.
Denise Tessier is senior regulatory consultant for Insurance Compliance Solutions,
Enterprise Risk Management and the
Consulting Practice at Wolters Kluwer
Financial Services. She may be reached at
On the flip side, many studies of business and per- sonal targets suggest that it may be incentives (“carrots”) rather than the stick that drive human actions more successfully. While the threat of penalties may be effective in increasing ERM efforts, perhaps even
greater results will be achieved by showing individu- als and
organizations how specific actions will benefit them.
When an organization sits down to explore
why to implement strong ERM and ORSA
“What’s in it for me?”
Fortunately, there are many concrete
benefits of ERM, and companies who have
well-developed risk and capital assessment
programs are discovering new advantages every
day. Implementations of ERM programs ideally lead to
improvements in risk management efficacy, operations,
and capital allocation, all with quantifiable dollar impact.
Specifically regarding ORSA compliance, there are benefits to the NAIC’s plan to allow insurers flexibility in how,
and to what degree, to complete their risk-based capital and
Companies can tailor their program to their size, lines of
business written, capitalization structure, and management philosophy towards risk-taking in general. The NAIC hopes that this
flexibility will better enable companies to manage their own risk
and capital/solvency position with terminology, methodology,
and reporting that will be truly meaningful to the business over
the long run.
Aside from the ORSA report itself, ERM implementation gives
insurers a structured framework to review business challenges and
opportunities in a new light, beyond a traditional evaluation of
risk focused on the purchase of loss-mitigating insurance or reinsurance. Risks that affect multiple departments are being reviewed
to- gether and aggregated. Insurers are gaining a better understanding of, and appreciation for, the true organization-wide impact of large-loss events or disasters.
Thinking about risk limits and tolerances as
part of an ERM program allows companies
to define their risk appetite, and eventually
the value drivers in their insurance, which
can help strategic business planning. Using a risk-based analysis to assess capital
helps maximize capital investments to the benefit of owners and shareholders, since the approach forces insurers to
think about the potential risks and rewards of their strategy in their underwriting portfolios and operations.
There are other benefits from a practical, operational perspective as well. Employee morale generally will increases in
alignment with their confidence in raising issues. Employee satisfaction has been tied also to a sense that the risks that most
concern them personally will be given needed attention and
Cost savings may be achieved, when controls are implemented
for risks on the basis of their frequency and severity, in ways that
may not have occurred to management in the past. Management
may also have more control over expenses overall, with a visible
impact to financial results.
“Stick” companies comply with all laws and
regulations 100-percent regardless of the cost or
effort. They may, for example, unnecessarily
duplicate control efforts to avoid fines or penalties.