In a previous class, we discussed the cost of risk and the goal of risk management. We discussed the fact that the goal of risk management is not to minimize risk, but to lower the cost of risk and maximize firm value.
A recent survey from PricewaterhouseCoopers suggests that while the insurance industry has taken significant strides to implement enterprise risk management techniques, the usefulness of these practices is being questioned. PWC’s survey indicates that many insurers are concerned about the effectiveness of ERM and whether or not it can create a return on investment. While the majority of insurers responded indicating that they had implemented ERM programs and that it is a top priority, the survey shows that teams in the workplace do not fully understand ERM and that it is sometimes not relevant in certain situations. Also, ERM is not incorporated when making every day decisions, strategic planning, etc.
Basically, the survey shows that while companies have made substantial progress in establishing ERM programs, ERM has not been fully integrated into regular business practices and unless this is done ERM will not be able to meet the firm’s objectives.
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