The time for using insurance for op risk has come



Hedging and mitigation of operational risk exposures seems to be the hot new subject this spring. Everyone is talking about it, from vendors to consultants, to practitioners.

Deputy editor Victoria Pennington tells me that, while the subject didn't feature on the conference agenda at the Boston Fed's event in May, it was what everyone was comparing notes about behind the scenes. This morning I had a software vendor tell me that it's adding insurance mapping functionality to its software solution shortly. And I hear that bodies such as the Committee of European Banking Supervisors and the British Bankers' Association - among others - are meeting up with reinsurers and other interested parties to discuss how products and services can be better structured to tackle operational risk mitigation.

The rumour mill is working overtime. I've heard tales of insurance products that have been modified specifically to improve financial services firms' ability to achieve a regulatory capital reduction. There are also apparently some capital market solutions in the works, modelled on catastrophe bonds, and several people have said that op risk derivatives will be in a cinema near us very soon indeed...

Here at OpRisk & Compliance magazine, we're jolly excited about insurance and capital market solutions for operational risk loss mitigation. We wonder what took the industry so long?

Never mind... What matters is that these solutions are arriving and, when they do, they will change the face of operational risk - the very value proposition behind the discipline - forever. Because suddenly the bean counters will be able to understand that improving operational risk can translate into reduced costs, a reduced risk profile, and an overall improved operating environment. Suddenly it will be transformed from a touchy-feely regulatory compliance exercise to a powerful fulcrum for corporate transformation.

We talk quite a bit about op risk and insurance this month. In our cover profile, Lloyds TSB's Carol Sergeant explains how her firm has tackled the insurance problem and become the first UK firm to get a regulatory capital reduction as a result. And Pennington, in her review of the Boston Fed conference, discusses what participants were saying about insurance behind the scenes.

I'd like this discussion about loss mitigation to build into a dialogue. If you, our readers, have a case study, an opinion, or even just gossip that you would like to share with us, email me at

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