While the U.S. insurance industry is making strides toward Risk Management and Own Risk Solvency Assessment Model Act readiness, a gap exists between the perception of RMORSA preparedness and the actual completeness of insurers’ enterprise risk management frameworks, according to a new report.
PricewaterhouseCoopers (PwC), London, U.K., released this finding in its “2012 U.S. Insurance ERM & ORSA Readiness Survey.” The study is a continuation of PwC’s two previous global ERM surveys, but exclusively targeted to the U.S. insurance market. The 65 survey participants comprised life, P&C and health insurance companies, covering U.S. headquartered international groups, U.S. domestic groups or companies, U.S. subsidiaries of European groups and U.S. subsidiaries of other foreign groups.
While 82 percent of the PwC survey respondents believe that their existing ERM processes are largely adequate for the requirements, 38 percent of company boards are not engaged or are only passively engaged in risk management, showing that risk governance may not be up to RMORSA standards.
In addition, 35 percent of companies indicate that they do not have a risk appetite linked to business strategy and financial goals, which is crucial to a comprehensive and effective ERM program.
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The RMORSA Model Act, which is being implemented in state law, requires insurers to manage an ERM framework that is embedded within company operations by January 2015.
“Setting the risk strategy, implementing and validating a capital model and developing effective risk reporting capabilities could take a couple of years,” says Paul Delbridge, leader of PwC’s risk and capital management services practice. “Our survey shows that many organizations may be underestimating the amount of work it will take to meet the RMORSA requirements.”