2013 Reports

Insurance Enterprise Risk Management: Toward The Next Generation

Goto, Shigeyuki

The practice of enterprise risk management (ERM) in the insurance industry has improved in recent years. This is partly because insurers have strived to reinforce risk-based management, and partly due to regulatory pressure triggered by the financial crisis as well as increasingly large natural catastrophes. Insurers’ activities have expanded across many countries and markets. They must work within an increasingly difficult and complicated environment due to rapid globalization, technological development, and changes in nature (particularly in terms of climate change and earth movement). In order to overcome such increasing uncertainty around the Internationally Active Insurance Groups (IAIGs), they should improve their ERM, and regulators and insurers should cooperate with each other in order to create a market-based solution for these extreme events. This paper aims to review the current actions of regulators and insurers, and then summarize how we improve insurance ERM toward the next generation. The main components to consider are complementary mechanisms for the bounds of internal model and rational decision-making, and the reinforcement of a market-based solution mechanism.