Page 21 - The Insurance Times November 2025

Risk Management

A Comprehensive

Risk Management

Framework for the

Insurance Industry Dr Sonjai Kumar
CFIRM, SIRM

In the insurance industry, risk is not merely a challenge to overcome; it is the very commodity we
trade. Therefore, a robust and sophisticated risk management framework is not just a matter of
good governance but a core strategic imperative. It is the bedrock upon which an insurer builds
its solvency, ensures compliance with a complex regulatory landscape, and ultimately achieves
sustainable, long-term growth.

T he article outlines why robust risk management is Operational and enterprise risks encompass internal
process failures, regulatory breaches, reputational
essential for insurers, defines the main risk
categories they face, and detail strategies for
emphasizes a model that traces causes to events and
managing those risks effectively. damage, and broader strategic threats. The framework
resulting consequences, helping organizations prepare
Key Points and respond effectively.
The framework categorizes insurance sector risks into The article stresses that risk management should be
three main groups: Financial Risks (like interest rate, integrated into all business strategies, especially in new
equity, liquidity, and credit risks), Insurance Risks (such product development and pricing; comprehensive
as mortality, morbidity, lapse, and expense risks), and assessments and sign-offs are required before launch.
Operational & Enterprise Risks (including regulatory,
reputational, and broad operational failures). Benefits of a mature risk framework include capital
optimization, improved firm value, better decision-
Asset and Liability Management (ALM) is highlighted as making, and regulatory compliance. However, failures
the principal strategy for mitigating financial risks, persist due to poor governance, risk culture, lack of
involving techniques like duration and cash flow implementation, herd mentality, and myopic risk
matching to neutralize the impact of market volatility identification.
on balance sheets.
Managing insurance risks demands ongoing monitoring, 1.0 Introduction to the Risk Management
especially regarding claims, policyholder behavior, and
expenses. Metrics like actual-to-expected ratios are Imperative
used for oversight, and mismanagement can directly In the insurance industry, risk is not merely a challenge to
affect profitability. overcome; it is the very commodity we trade. Therefore, a

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