(August 15, 2013) — Chinese insurance companies need to significantly improve their understanding of the risks they are taking on and how to manage them, according to a survey by Towers Watson.
The consultant’s 2013 Risk Management Healthcheck, which surveyed 37 Chinese life insurers on their companies’ risk governance, monitoring, and reporting frameworks found just 40% use some risk management information in their strategic planning, capital management, asset/liability, and reinsurance processes.
Worse still, one in seven companies does not reference or monitor risk management information in their decision making processes at all.
And little work has been done to define the companies risk appetites in any meaningful depth: 43% of participants only use simple “low”, “medium”, or “high” risk ratings in their risk appetite statement.
One of the key areas of concern highlighted by the survey was that the management of insurers appeared to be focussing far more on product development than product management.
While 86% of insurers consider the impact of introducing a new product on operational processes, just 22% perform any sort of quantitative analysis of the associated financial and insurance risks, using risk-based capital assessment.
When it comes to their investment management, the Chinese insurers are not much better. While 51% of companies calculate and monitor basic investment risk metrics at the asset class and product level, only 27% monitor tail risk, or analyse portfolio risks into the various risk premia.
“We see that for many companies the basics are in place, but a lot of work is still required in order to successfully integrate risk management information into day-to-day and strategic decision making, thereby helping companies to further build the secure, sustainable industry that policyholders and investors want,” said Adrian Liu, general manager of Towers Watson’s life insurance consulting business in China.
The good news is the problem appears to have been recognised by China’s Insurance Regulatory Commission.
Shanghai Security News reported this week that the commission is consulting on a new business evaluation index system, designed to include management evaluation, service evaluation, and risk assessment.
There are already question marks about how specific it will be however, given insurers have different structural levels.
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