The stagnancy of risk transfer

It's fairly clear from our feature on alternative forms of risk transfer for op risk that not much has happened in this space over the past two years, despite a lot of fine words from both the insurance industry and its clients.

This must change. While the op risk discipline has grown in leaps and bounds over the past 24 months, this growth has focused mostly in understanding the risks firms face and attempting to describe them – either in qualitative or quantitative terms.

But risk management – as a discipline – is really about, well, risk management. I accept it is early days for op risk, but the industry does need to focus on this issue of mitigation or transfer. Because that is where the real value is going to be for firms, and without the ability to mitigate or trade off risks, op risk will always be a second-class citizen in the world of risk.

I accept that the challenges for operational risk are serious, and the lack of data, problematic. How do we trade something that doesn't have a standard underlying value, such as bonds or stocks?

One of the reasons why I think the efforts to quantify op risk are so important is that we need that data to help underpin a more robust analysis of the risks, to improve pricing. But even then, a certain 'gamble' will always be involved. Certainly, that's what makes it exciting, and I hope a market-place to rival credit and market risk.