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6 Steps to a Good Risk Assessment

Process
November 23, 2015 | By Molly Corbett | Enterprise Risk Management | English

Effective enterprise risk management is

becomingly increasingly important in Molly Corbett
today’s regulatory environment. Group Risk Manager and Cyber
Regulators and rating agencies expect Specialist, Stamford
that companies have a good
Read all articles
understanding of their risk pro les and
have implemented the appropriate
governance structure to mitigate their
risks. The insurance industry is ever-changing, and it can be challenging for an organization to have a
complete understanding of the risks that can pose potential pitfalls to its operations.

Conducting a company risk assessment can allow an organization to obtain a holistic view of the risks
it faces, allowing management to identify these risks and capitalize on opportunities.

1. Identify Your Company’s Risks

Consider what you de ne risk to be. A common de nition of risk is any event that negatively in uences
your ability to achieve your business goals.

Risks affect a company’s ability to survive, successfully compete within the industry, and maintain its
nancial strength and positive public image as well as the overall quality of its products, services and
people.

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Think about risks from your point of view within the company, considering your group’s goals and
objectives. You should consider anything from insurance risk, such as “Natural Catastrophe Risk,” to
operational risks such as “Outsourcing and Service Provider Risk.” A good starting point is to look at
your company’s presentation to the Ratings Agencies and Regulators. In which of these risks have
these entities shown interest? What other risks can you think of?

2. Create Your Company’s Risk Library

Once you have analyzed your company’s risks, you should begin to establish a company risk library.
The risk library provides the framework for the risk assessment process. It summarizes and de nes, in
a common repository, those risks to which the company is exposed. The library helps to facilitate
discussions of risks and their de nitions, and it promotes both consistency and a culture of risk
awareness. To help streamline the process at Gen Re, our risk library is broken into four categories,
with multiple risks falling into each individual category:

Insurance Risk
Market Risk
Operational Risk
Strategic Risk

3. Identify Your Risk Owners

For each of the risks within your risk library, you should identify the most appropriate person to
monitor and manage those risks - in other words, the risk owner(s). The risk owner is responsible for
assessing risks and identifying associated controls. This role is also responsible for implementing and
maintaining appropriate controls within its associated area of responsibility, and for reporting
breaches of controls or risk appetite. There can be more than one risk owner for each of the individual
risks. For example, the risk owners of “Business Interruption/Disaster Recovery Risk” may include
individuals from Finance, Human Resources and Business Unit managers.

4. Identify the Controls to Mitigate & Reduce Risks

Working with the risk owners, identify current controls that are in place to mitigate and/or reduce risk.
For example, investment guidelines help to mitigate “Equity Risk.” Each control should also be assigned
an owner or responsible party. This can be a functional responsibility, instead of an individual or
speci c person.

5. Assess Risk Potential and Impact

The company’s risk appetite is based on its own evaluation of the tradeoff between risk and return.
Assessing the nancial impact and likelihood of risk can aid management in determining whether the
company is operating within its stated risk appetite and should accept, reject or reduce risk. Working
with the risk owners, evaluate each of the risks in the risk library, based on:

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Financial Impact or Signi cance - How big of an impact would this risk have if it were to occur?
This impact should be considered, taking into account the mitigating impact of the risk controls
and monitoring of risk controls.
Likelihood - Consider how likely it is that this risk would actually occur after the mitigating
effects of the risk controls. The evaluation of each risk can be on either a quantitative or
qualitative basis, dependent on the availability of information or the con dence in approach.
For some risks, such as “Natural Catastrophe Risk,” the company may choose to use outputs
from catastrophe models. For other risks it makes more sense to develop a scenario-based
approach for evaluation.

6. Revisit Annually

At this point you have:

Created a risk library and identi ed risk owners

Identi ed mitigating controls
Evaluated each risk for nancial impact and likelihood

The risk assessment is a living process and should be conducted on at least an annual basis, and
certainly more frequently if there has been a substantial change in your company’s risk pro le.
Additionally, it is a valuable exercise to re-visit the company risk library annually, as risks and
de nitions may develop and change from year to year.

Risk assessment allows management to assess the company’s risks and controls and devote resources
where needed. Evaluating the nancial impact and likelihood of each risk can be helpful when
prioritizing the company’s risks. Identifying risk and control owners helps to clarify roles and
responsibilities in the company and promotes accountability. However, for the risk assessment process
to be successful, you must consider what kind of reporting would speak to your management team. A
risk assessment is only as useful as how it is being used and decisions are being made. The risk
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2/11/2019 6 Steps to a Good Risk Assessment Process | Gen Re

assessment process takes time to do well; therefore, you want to create output that is helpful to
management.

The risk assessment process is ongoing and should be revised over time. It can take several iterations
before you have a complete picture of your company’s risks and truly understand the controls and
processes that mitigate them. The outcome of the process gives management and its employees a
better understanding of the company risk pro le and the importance of the control environment in
mitigating risk.

Tags: insurance operations, risk management, rethink risk, ceo conference

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