For example, one broad-based US player reduced the volatility of its earnings and refocused on capital-light businesses by divesting its closed block of variable annuities. Selling a life or annuities back-book can provide the capital necessary to make such a pivot quickly. Many global insurers are now moving to a capital-light, fee-based business model (such as asset management) in structurally advantaged value pools in their domestic markets. By supporting a number of insurers that were making this journey, we have identified several key elements that companies should consider when they restructure to create the risk function of the future.
For others-companies that had significantly expanded the functions after the financial crisis to meet specific regulatory requirements-it is about right-sizing and developing a true value proposition, beyond regulatory issues. For some insurers, the change is about beefing up their game and expanding the risk and compliance functions to meet the new expectations. In response, some insurance companies are beginning to restructure these functions extensively so they can fulfill their new responsibilities in a more effective way. The scope of these demands is posing a creative challenge for chief risk officers and chief compliance officers (CROs and CCOs). And forward-looking metrics for financial and nonfinancial risks, combined with regular stress testing, are important to ensure that the business is operationally resilient and functioning in a safe, sound manner across an extended risk and compliance landscape. Deep dives on business performance, such as unusual claim patterns or better-than-expected customer-retention levels, can help inform business decisions. The risk and compliance functions are expected not only to go on protecting insurance companies from downside risks but also to shift toward providing them with strategic advice to support growth (for instance, new business) and change (such as company-wide cost and tech transformations).Īt the same time, the risk and compliance functions need to perform second-line risk reviews and to help the business, as the ultimate risk owner, connect the dots on key issues. Today, a significant transformation is gaining steam as insurers must reinvent themselves in the multiyear reality of COVID-19, increased levels of uncertainty, pressures for efficiency, and the need to be resilient and relevant by tapping new sources of growth. In the decade between the global financial crisis and the COVID-19 pandemic, many insurance companies focused their risk and compliance activities on protecting themselves from downside risks and meeting ever-evolving regulatory requirements.
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