Insurance Risk North America: CROs must avoid conservative culture

Regulatory mindset 'creates no value' for US insurers

Chief risk officers (CROs) must ensure their organisations do not develop a conservative risk culture like their regulators, delegates at Insurance Risk North America in New York heard.

Steven Verney, executive vice-president and chief risk officer at Allstate, said regulators have a conservative mindset when it comes to supervising insurers and the CRO must ensure their organisations do not adopt that view.

"One of our key roles is to make sure it does not become the culture of the companies that we work for, because the regulatory mindset does not create value. Regulators create rules; their point is to prevent bad things from happening. Our job is to both prevent terrible things from happening and to create value," Verney said.

He rejected the notion that a CRO's job is to let the company "gracefully ease" into the regulatory mindset. "We've got to find a way to satisfy that mindset while still being vibrant and create value," he said.

Elizabeth Ward, executive vice-president and chief enterprise risk officer at MassMutual Financial Group, warned insurers not to be drawn in to following the regulatory checklist that supervisors use to assess risk culture. "Otherwise this checklist somehow turns around into being the checklist that the company must apply to themselves without actually creating the culture that they perhaps intended to. Or perhaps they just intended to keep regulators' and supervisors' standards," she said.

Ward added that some of the proposed regulation the US insurance sector is expecting in relation to risk culture seemed to be too prescriptive. This, she said, raised suspicions that the regulator is too focused on its own agenda of loss prevention.

"Many times those supervisors who are coming up with the regulation don't have the country's mandate of trying to preserve jobs in addition to trying to prevent losses," she said.

Ward added: "It sometimes seems pretty obvious which of the supervisors do have the dual mandate of worrying about retaining jobs in their country, let alone potential insurance products in their jurisdiction. Some of the regulations that are being proposed seemingly don't want to have long-tail life insurance products in their jurisdiction, for example."

It is not only regulators that are seeking prescriptive risk cultures, Raj Bohra, executive vice-president at Willis Group, told delegates. Rating agencies are also questioning US insurers' risk culture when rating their enterprise risk management (ERM) programmes. "Sometimes the questions coming from the rating agencies do seem like very prescriptive and proscriptive questions. And that can lead to a very compliance perspective view on ERM," he warned.