Risk managers are under growing pressure to prove their competencies with regulators and rating agencies, say Amlin's Alex Hindson and Aviva's José Morago. They talk to Christopher Cundy about how qualifications can help
The expertise and professionalism of staff in the financial sector came under question in the economic crisis of the late noughties. Post mortems showed not just wilful disregard of the rules by employees, but plenty of examples of incompetence.
Since that crisis, legislators and supervisors have looked at the people, as well as the process. Solvency II, for example, requires that personnel have the skills, knowledge and expertise to fulfil their responsibilities. Those holding key functions - such as those in the risk management or actuarial teams - must meet "fit and proper" criteria.
While actuaries have the benefit of well-known professional qualifications requiring evidence of continual development, risk management tends to be less formalised. Among those trying to change that is the Institute of Risk Management (IRM).
The London-based institute was founded in 1986 with the aim of building excellence in risk management through training for risk professionals. With nearly 5,000 members, 60% in the UK and 40% overseas, IRM members cover all industries and sectors, not just insurance. It hosts a number of special interest groups, including a thriving one in enterprise risk management (ERM) in insurance, led by Amlin's chief risk officer Alex Hindson. José Morago, Aviva's group risk director and deputy chairman of the IRM, also chairs a newly created industry forum on internal models (see IERM, 24 April).
For relative newcomers to the topic, the IRM offers a modular international certificate in risk management that with further study leads to a diploma. A specialist qualification on risk management in financial services is also offered.
Broader focus
However, Morago says that the IRM has also broadened its focus to wider support for the profession of risk management, including certification of risk managers. "That's important in the context of Solvency II," he says. "The skills set for risk managers is changing. So how do you prove the required capabilities for the risk function and bring in training around those areas?"
The IRM is working towards a new scheme to provide an alternative route to certification based on other qualifications and prior experience. IRM is having discussions with the Federation of European Risk Management Associations and other associated groups to take this forward.
"The skills set for risk managers is changing. So how do you prove the required capabilities for the risk function and bring in training around those areas?" José Morago, Aviva
Hindson says that insurers are being challenged externally, not just by regulators but by rating agencies that are beginning to ask for proof of competence as part of their focus on an entity's risk culture. At least one European insurance regulator, while not formally endorsing the IRM diploma, has suggested it would be suitable for proving a risk manager's credentials in an "appointed person" regime.
These changes provide an opportunity for people working in risk management to professionalise themselves. "The time when we are treated like a profession is when we act like a profession," Hindson says.
Other institutes are also trying to step in too: a number of actuarial institutes offer the chartered (or certified) enterprise risk analyst/actuary, but this can be difficult for non-actuaries to take. The UK's Chartered Insurance Institute's advanced diploma includes modules on risk management.
Whether there should be a specialist qualification for insurance risk managers is an interesting question. Risk management is a broad topic and people working in the sector may do better by avoiding specialisation and learning universal principles and practice.
If the regulatory pressure increases further, the time could arrive when supervisors will want insurance sector risk managers to have a specific set of skills and competencies. That could be the moment to launch a dedicated qualification, Hindson suggests.
Special interest group
Hindson started the ERM in Insurance group in October 2010 with Phil Whittingham, chief European risk officer for XL.
"I had no background in insurance and there was no networking group," says Hindson, who had joined Amlin the previous year, following stints as head of ERM at consultancy Aon and as a risk services manager for pharmaceuticals firm AstraZeneca.
The launch coincided with a period when many were struggling with the new and difficult topics being introduced via Solvency II, such as stress testing and the own risk and solvency assessment. "We expected twenty to thirty people to join - now we have 650 people on our circulation list," Hindson says.
The main forum for discussion is the monthly events where guest speakers gather to discuss topics suggested by the members. A survey is typically circulated beforehand to help judge where the industry stands on particular issues - and the responses are often brutally honest. A recent poll ahead of the meeting about what non-executive directors want from the risk management function (see IERM, 21 May) revealed that one-fifth of firms have no process for following up risk appetite violations.
The group also runs surveys on other topics to help members benchmark themselves, such as on staffing levels and qualifications, and seeks to build best practice, encourage networking and seek dialogue with other representative bodies - as well as provide a voice for the risk management community to respond to consultations.
Morago recently established a forum on internal models, to help insurers meet the challenges of validating their internal models following a gentle nudge from the Prudential Regulation Authority, he says.
There is a regional group in Bermuda, headed by HSBC's Justin Baillie and Catlin's Nick Nebard, and a non-specialist Swiss group in Zurich with around a third of its members coming from the insurance sector and a third from the pharmaceuticals industry.
Interested parties are welcome to come along to the meetings to see how they run, Hindson says, but after a few events they will be gently asked to apply for affiliate membership of the IRM - which anyone can hold.
