...and to navigate the UK’s Insurance Act of 2015, respectively.
Airmic has released two new guides in its relaunched series of popular EXPLAINED guides: Risk Appetite: The facts, the myths, and the links with culture, maturity and sustainability; and Making the most of the Insurance Act 2015.
Airmic’s EXPLAINED series aims to provide guidance for learning and development on a range of risk and insurance subjects at an introductory level.
Risk Appetite: The facts, the myths, and the links with culture, maturity and sustainability.
Risk appetite is a key component of enterprise risk management – it refers to the amount and type of risk that an organisation is willing to pursue or retain.
Willingness to bear risk can be defined in two ways:
• An organisation’s desire or aversion to pursue opportunities in an uncertain business environment
• How much volatility around an expected outcome is tolerable in terms of capacity, regulatory compliance, ethics, reputation and alternative costs for the business.
The report aims to providing individuals who may not be risk management specialists, with a high-level overview of:
• What risk appetite is and why it is important
• How risk appetite can be used to support decision-making
• The role of culture in risk management
• Practical challenges of applying the concepts of risk appetite.
The publication is a partnership between Airmic and Arthur D Little, a management consultancy, and QBE, an international insurance company.
The approach described in the guide is aimed at ensuring that an organisation effectively implements a mechanism for understanding how much risk it should take in relation to strategic objective-setting, value creation and best value delivery, business model changes and investment decisions.
Defining and implementing risk appetite (increasingly referred to as a risk attitude) is a strategic activity that involves the Board and top management, as it must be aligned with strategic objectives, and requires consensus and engagement from the organisation’s leadership.
Risk appetite varies between industry sectors and between organisations within those sectors, and by geographies and types of risk.
The level of regulation and capital intensity of an organisation will influence its perception of acceptable risk in relation to potential opportunities.
Organisations and the context in which they operate are dynamic, and an approach of continuous improvement should be adopted to ensure that lessons learnt are taken on board and that risk appetite is regularly reviewed, updated and signed off by key stakeholders, including the Board.
Commenting on the release of the Risk Appetite publication, Claire Combes, Chair, Airmic, commented:
“Often a poorly explained concept, this guide fills the gap in many similar guides, by providing a clear explanation of the link between risk appetite and culture, with approaches to designing and embedding risk-taking within agreed limits”.
MAKING THE MOST OF THE INSURANCE ACT 2015
The Insurance Act was the most fundamental change to UK law governing commercial insurance and reinsurance since the Marine Insurance Act 1906.
It governs all polices placed, amended or renewed after the 12th August 2016 and aimed to address the imbalance between insurer and insured rights and encourage a deeper understanding of the risk by all relevant parties.
The legislation made significant changes to: the pre-contract duty of disclosure, insurer remedies in the event of a breach of the new duty of fair representation and certain terms used in policy wordings.
The guide aims to assist risk managers in making the most of the benefits of the Insurance Act 2015, while ensuring their own compliance with the duties placed upon them.
The publication is a partnership between Airmic and Herbert Smith Freehills, a full service international law firm with a market leading insurance practice.
Commenting on the release of the Insurance Act publication, Julia Graham, CEO, Airmic, commented:
“Policyholders have always been obliged to be open and honest with their insurer - the Act clarifies what this actually means. This guide sets out an explanation of a quite technical subject in clear language and describes how the Act has been working, providing a one-stop shop for those who want a practical understanding”
Scan here to download the app