Standard Life: how our risk function innovates

Companies: Standard Life

Stewart Gray, financial and insurance risk director and Andrew Daniels, head of risk (regulator and board), at Standard Life discuss the key role the risk function plays within the company.

Stewart GrayHow does the risk team contribute to the strategic direction of the business?

Gray: The company is making good progress against our strategic aim to be a well-diversified global investment company. Acquisitions and disposals have played an important part in this progress over the last few years and the risk function has been heavily involved in due diligence and risk reviews on transactions. Examples include the sale of our Canadian life company and the acquisition of Newton, Ignis and most recently the Elevate platform.

Clear strategic aims help us to focus on the most relevant emerging risks. For example, our forward looking view on low growth caused us to look very carefully at the long-term prospects for future business from guaranteed products. We concluded that customers’ interests were best served through transparent savings contracts without guarantees, which led to the closure of investment guarantee product lines.

How do you make the ORSA work for the company?

Daniels: The principles that underpin the ORSA (own risk and solvency assessment) align very clearly with our goal for the risk function to always be forward-looking and anticipatory with timely and effective engagement of boards and senior executives.  We work in partnership with the risk committees so they can help shape what we do. We call this approach the “living ORSA”.

To support this we created an ORSA ‘app’ so that all members of the board and executive committees can access the ORSA via their iPads. The living ORSA is always on and accessible giving access to the latest results and information. This helps to get away from any notion that the ORSA is a once-a-year activity.

How are you ensuring that the first line understands their risk responsibilities?

Gray: The foundation of risk-taking and risk- management responsibilities lies in a firm’s governance framework and how it is implemented. Careful consideration is required when determining responsibility for sign-off, for example, as this will determine who is responsible and therefore who is managing the risk. As an example, we developed a Risk Opinion appendix for all material first line board papers involving financial or insurance risk. The Risk Opinion provides a succinct description of the paper’s recommendation, the supporting rationale and key judgements involved. In doing so we help to maintain clarity on risk responsibilities.

Another example is our “Management Awareness of Risks” (MARs) process for operational and conduct risk.  This allows first-line executives to score risk exposures that stem from the execution of their responsibilities on a day–to-day basis. MARs reports are produced and combined with those of different business units to drive visibility and accountability for operational and conduct risks all the way to the chief executive of the business unit.

Communicating risk is a core aspect of the risk function. How have you enabled that?

Daniels: One of the challenges for the risk function is to give our senior risk committees visibility of the breadth of our risk environment but at the same time to focus attention and discussion on the most material points. We created our “Views on Risk” pack to enable the right conversations.  Our ‘headlines’ page focuses discussion and then a layered dashboard structure supports this with tailored views on specific topics or areas of risk.

Andrew DanielsWhat are you doing to ensure that the risk teams of the future have the appropriate skills?

Daniels: The world and external environment is always changing – it is hard to predict with certainty all the risks that will emerge. We believe that future risk professionals need to be adaptable and well-rounded. Our “My Risk Academy” initiative was launched last year to support our teams – it provides access to sessions to build knowledge and also offers courses from specialist external skills providers.

Gray: Part of our approach is to introduce fresh perspectives via new starts and a systematic process to require external independent input to material judgements. We have recently introduced a new graduate recruitment and development programme to develop these fresh perspectives.