Still unknown to the most, this figure was essential for companies after 9/11 and the market crash of 2008. Now that the coronavirus is demanding more strategies in place, his role is becoming prominent again
A recent study by the Cass Business School in London claims that as well as acting as a reminder for the insurance sector to adopt new digital initiatives, the Coronavirus pandemic is also highlighting how vital the figure of the Chief Risk Officer is in guiding companies’ strategies. Which for many of us will beg one large question – what exactly is a Chief Risk Officer?
A Chief Risk Officer (or CRO) is a corporate executive responsible for identifying, analysing and combating internal and external risks. Don’t be surprised if you’re unfamiliar with the term – until relatively recently, chief risk officers were generally anonymous back-office workers who dealt mainly with insurance for problems like fires, earthquakes and other natural disasters. But it’s a complex job which requires a skillset that covers everything from evaluating supply chains to dealing with government regulators. Some large companies began employing risk managers to collect information from across their organisations for insurance and risk analysis after the terrorist attacks of 9/11 and the market crash of 2008 underlined the importance of crisis planning. In the few short months since Covid-19 appeared, the resulting pandemic has shown clearly how insurance companies need to have strategies in place for catastrophic situations, catapulting the role of the chief risk officer into prominence.
The new normal is making it increasingly clear that the speed and effectiveness of data is vitally important, and the Business School’s study of nine insurance companies of varying sizes also showed how insurtech – the use of technological innovation to increase savings and efficiency in current insurance models – can provide opportunities for surviving the pandemic unscathed. It also found, however, that insurance companies often favour prescriptive digital strategies over integrated ones which direct risk upwards, perhaps because in one in three companies with a CRO, the chief risk officer is not involved in implementing them.
The study advises insurers and re-insurers to start thinking of risk as an opportunity and emphasises that, given the possibility of a second outbreak of Covid-19, or of future pandemics, cybercrime and climate change, they need to adopt realistic stress tests and future scenario planning. Most importantly, it warns that insurers need to stop putting off modernisation if they want to keep up with their more forward-thinking competitors: insurers who can accurately estimate risk through the extraction and analysis of data will be better positioned to face the evolution of the market.
As the previously unthinkable shift to working from home shows, for all its negative effects, Covid-19 has also created the opportunity for paradigm shift – and as regards risk, it’s a paradigm shift insurers would be wise to begin engaging with.
So in conclusion, it looks as if the answer to the question “Who needs a Chief Risk Officer” may well be, the insurance industry.