Page 41 - The Insurance Times January 2022

make to put effort of connecting with other fellow years of the 21st century, Insurers and banks in emerging
professionals. economies went through a period of tremendous growth,
showing solid fundamentals in capital requirements, liquidity,
General guidelines for Risk Management and asset quality compared with insurers and banks in
Best Practices in emerging economies developed markets.
A tentative set of guidelines would include the following
points: Over the last few years, though, the business environment
Y Regulators should work together with market has shifted: an increasingly demanding regulatory and policy
participants to establish and enforce risk management environment, growing risk costs, and declining profitability
rules. Banks and insurance should be encouraged to levels are presenting significant new challenges. Risk
discuss common policies for risk management, and joint management has a major role to play.
regulators in their efforts to minimise systemic risk.
Risk in emerging economies is higher than in developed
Y There should be a clear distinction between regulation ones. Expectations are that the level of risk will continue to
of risk control for insurance and banks even if some of increase, as will volatility. This, however, is not a reason for
the material requirements are the same for both kinds retreating to one’s comfort zone, as risk creates opportunity
of institutions. and seizing opportunities is the way in which companies
Y Besides capital requirements and other quantitative develop and grow. The rewards from doing business in and
requisites, regulators should set forth and enforce with emerging economies can be sufficient to cover the
qualitative requirements for internal controls; financial increased level of risk but they can only be achieved through
institutions should be required to have written risk proper risk assessment up front and continual reassessment,
control policies. because we cannot know the future. All we know is that it
will be different and that we will probably have to manage
Y There should be an efficient auditing of insurance and risks in coming years’ time that we cannot currently
banks with respect to their exposure to risk and their conceive. This is exciting as well as challenging, and requires
internal controls.
everyone to understand and manage risk much better than
Y Well-developed clearing facilities should be in place, in they generally do now.
order to enhance risk management at an aggregate
level; cooperation agreements between clearings From humble beginnings, risk and risk management have
acting in different markets are essential for supervision grown into a veritable industry. In the future companies will
succeed not through bigger and bigger risk management
across markets.
departments but through line managers understanding and
Y At firm levels, VaR and similar quantitative models are
managing risk effectively. Tools and techniques will continue
an important tool, but useless without a corporate
to develop and technology will help this process, but the key
culture of risk management, that includes proper
will be people, as only they can use judgement and respond
internal controls, flow of information, engagement of well to the unexpected which occurs all too often in
senior management and qualitative standards in emerging economies. Hope for the best but plan for the
general. worst must be the watchword when dealing with emerging
Y Due to the lack of trained professionals, a technical economies.
expertise in handling quantitative models should be
gradually developed. Reference
1. Hans Helbekkmo et al., Enterprise risk management—
Y Attendance at international seminars and training
Shaping the risk revolution, McKinsey & Company and
programs is an important source of knowledge for both the Risk Management Association, 2013, rmahq.org.
regulators’ and firms’ employees. Such programs should
2. Tudor, G. (2000) Rollercoaster – The incredible story of
be regularly held on a domestic basis, as a means of the emerging markets. London: Pearson Education.
disseminating knowledge, experience and the culture
3. Daniell, M.H. (2000) World Of Risk – Next generation
of risk management. strategy for a volatile era. Singapore: John Wiley & Sons.
4. Economiesuisse (2007), Swiss Code of Best Practice for
Conclusion Corporate Governance,
The challenges faced by risk managers in emerging www.economiesuisse.ch/de/ PDF%20Download%20Files/
economies are both numerous and complex. In the early pospap_swisscode_corpgovern_20080221_en.pdf.. T

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