Page 118 - Risk Management in current scenario

be managing the risks better will be in a better competitive position in
terms of satisfying customer’s need as well as Shareholder’s required
return. The key in this direction is build up of risk culture.

Enterprise Risk Management

The RBC committee has exclusively recommended a parallel
implementation of Enterprise Risk Management (ERM). The ERM in a
simple sense is a Company-wide application of risk management where
all functions contribute to identification and management of risk. This is
opposed to silo approach where risk management is focused and limited
to few functions.

The implementation of ERM likely to bring the change in the mindset of
the all the employees in relation to how they perceive risk and risk
management, this is because shareholders will be keen to optimize the
return on capital. The ERM will also help in choosing the risks so that
they get diversification effect when they aggregate the risks. The
aggregation of risks is not summed total of all risks because different risks
are correlated, so overall risk gets reduced.

Risk diversification may be used smartly to lower the overall capital
requirement. In some countries such as China where implementation of
ERM reduces the overall capital requirement.

Policyholders

Policyholder’s need and managing their expectation will determine the
leaders in the market; this is represented by Conduct Risk which is defined
as the risk of not delivering good customer outcome. In some countries,
managing conduct risk is one of their key requirements of success apart
from financial results. The future of risk management will have a very
important component of conduct risk apart from other standard risks.

Though the conduct risk separately, may not demand the additional
capital but it could be a key driver of new business generation. In this

116 | Risk Management in Current Scenario