The Evolution of Risk Management

The Evolution of Risk Management

The Evolution of Risk Management

By: Marianne Westphal, Senior Director, & Angie Wachholz, Manager

Managing risk has become paramount in understanding the global marketplace. This has led companies to reevaluate their risk management strategies and operations. Actuaries, of course, have always been involved in risk management. More recently, risk management has become the focus at many companies — from consulting to insurance — and actuaries are increasingly moving into risk management roles.

From a historical perspective, insurance, and by proxy, risk management was initially used to finance certain losses within a company. As companies have continued to expand and develop, so too have the
potential enterprise-wide risks. Companies have been compelled to examine their enterprise-wide risk as it relates to the overall framework of an organization.
Several trends have arisen as we continue to examine how companies manage risk.

For example, we have seen an increase in the number of Chief Risk Officer roles as well as the growth of risk management departments within organizations. This could be attributed to new regulatory changes, including Solvency II and ORSA. Additionally, companies are giving increased consideration to economic capital and operational risks.

The expansion of the role of the CRO, and difficulty in defining the role at times, is evidence of the growing component of risk management within companies. We’ve seen more and more actuaries taking on CRO roles as companies understand the significance of this position within the organization and the value of having someone with risk management expertise.

The prevalent use of analytics also comes into play in risk management as companies have access to more data, and new types of data, to assess potential risks. This gives companies access to more precise forecasting, but also presents more complexity in terms of data analysis. Again, an actuarial perspective is seen as very useful in analyzing this information and predicting
future results.

Lastly, as risk management continues to change and develop, so too are actuaries’ roles. For example, actuaries are becoming involved in risk management in new industries like energy as well as banking and investment banking.

There are new horizons in risk management as we see a move toward more data, greater ways to analyze behavior and more of an enterprise approach to managing risk.

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