The insurance sector is facing a rapidly evolving risk landscape, evidenced by the fact that most insurance chief risk officers (CROs) use early-warning KPIs for more risks than those considered material under their Own Risk and Solvency Assessment, per a McKinsey European Insurance Risk Survey. For example, while only 20 percent of survey respondents deem data and technology risks material, 50 percent have early-warning KPIs in place. Climate risk is an exception: 60 percent cite its materiality, but 25 percent have early-warning KPIs. Senior partner Luca Pancaldi and coauthors recommend that European insurers reorganize their risk functions and elevate the leadership status of CROs to better manage risks.
Image description:
A bar chart depicts the percentage of survey respondents who classified various risks as material in their Own Risk and Solvency Assessments (ORSA), compared with the percentage that established early-warning KPIs for those risks. Cyber risk emerges as a top concern, with nearly 100% of respondents deeming it material and ~75% having early-warning KPIs in place. Climate risk follows, with nearly 60% considering it material and around 25% having early-warning KPIs.
Regulatory compliance is next in terms of importance, with 40% considering it material. More respondents say there are early-warning KPIs for regulatory compliance than for climate risk, at 50%.
Other risks, such as model risk management, data and technology risk, and conduct risk, show roughly 20% of respondents consider these risks material, and approximately 50% have corresponding early-warning KPIs for both model risk management and data and technology risk, while ~25% have early-warning KPIs for conduct risk. While no respondents selected third-party risk management and asset liability management as material, roughly 75% report having early-warning KPIs for third-party risk management and about 50% for asset liability management.
Source: McKinsey European Insurance Risk Survey, 2023.
End of image description.
To read the article, see “Elevating the risk function in insurance: Building a strategic advantage,” November 12, 2024.