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In Articles #1 to #9, I have argued that many companies have reached a strategic inflection point driven by the dynamic and disruptive nature of the business environment. I have further argued that Chief Risk Officers (CROs) are well placed to provide good counsel, evidence-based insights and a holistic view few other functional departments can offer.

The insurance industry faces a high stakes challenge with increasing pressure on corporate leaders to reset the business in order to respond to the numerous strategic challenges they face. Despite this pressure, the vast array of contradictory advice will likely force leaders down the path of least resistance; short-term shareholder value. This will inevitably be at the expense of innovation ~ the secret sauce.

Most corporates do not know how to respond to entrepreneurship, particularly those ‘time-served’ leaders who see innovation as a threat to the status quo. There are many examples of firms instigating share buy-back schemes, rather than investing to secure their future. This has led to criticism that firms have not generated enough good ideas to invest in.

How then can the CRO and risk function help firms respond to this inflection point? In a risk-compliance world deliverables have almost exclusively been focused on the productivity lever (refer Article #6 – Think Like a Disrupter) designed to deliver improved effectiveness and efficiency. How can we turn compliance activity into practical actions that deliver on the right business strategy?

Risk compliance vs. Risk Innovation

There is an inherent challenge in so far most insurance firms don’t do strategy – in fact they think planning is strategy (Refer Article #5 – An integrated approach to risk, capital management and strategy). Strategy is about exploring options, understanding the trade-offs and ultimately making tough decisions.

It is also about keeping your strategy simple, so you can clearly communicate your strategic intent. When risk practitioners lament ‘effectiveness and efficiency’, or perhaps said less eloquently, doing what you already do in a better (effective) or faster/cheaper (efficient) way, they suffer from the same ‘planning’ mindset as their peers.

When competitive advantage is short-lived, the only real response is to continually adapt. This requires a fundamental shift in mindset ~ from risk-compliance to risk innovation. An entrepreneurial mindset that creates and captures value through initiatives, use cases, exploring options and pivoting.

Perhaps innovation presents the biggest hurdle, as there is a risk (no pun intended) of failure. I personally know many risk professionals who are some of the most risk adverse individuals I have worked with. How is it possible the insurance industry has embraced innovation, but the risk function has been left behind? The only way to success, is through failure (or failing fast and early).

Where to start?

The proliferation of S166 remediation and risk transformation projects post-Solvency II implementation date tells us something is not quite right. Embedding what you already have but in even more detail, will not drive outperformance and will certainly not engage the business.

It is well known CEO’s who consistently deliver higher shareholder returns focus relentlessly on capital allocation ~ backing those projects that not only exceed the Return on Capital, but will also provide outperformance. What is your risk function equivalent?

The accepted view is these changes are difficult to achieve without visible, senior management backing. In some cases, this is correct, for example when seeking ‘breakthrough innovation’ that is dependent on the investment of both time and capital, but there are also examples where risk innovation can start with small incremental changes, provided the right mindset is in place.

? Ask your Executive to explain the business strategy, operational plan assumptions and vulnerabilities to you in simple and clear terms

? Ask your CRO how the risk function creates and captures value

? Find out what the innovation process is in your company. Is there an Idea Lab or Entrepreneurs Club

? Consider how you can renew your own competitive advantage, by building capabilities and skills that are unique and disruptive

? Negotiate a paid sabbatical so you can explore a ‘digital first’ strategy for the risk function

? Ask the CEO to sponsor a strategic initiative or use case aligned to key business outcomes (i.e. accelerating the investment plan, reviewing the pipeline of M&A opportunities or even a transformation plan aimed at increasing profitability)

? Read press releases, financial updates and identify opportunities where the risk function can add value

? Ask yourself how the risk function can generate many, many new ideas from which the best ones can be selected

? Focus on a small number of big-ticket items that have the potential to deliver outperformance

? Accept that not everything you try will be an overnight success

? Adopt a highly analytical and fact-based approach that challenges accepted norms and assumptions, both your own and others

Final comment

What are your thoughts on the Entrepreneurial CRO? Do you agree or disagree with me?

If you have implemented some of my proposals, what have the results been?

Let us have a chat in the comments! I read and reply to everyone.

Reciproco provides knowledge integration across risk, solvency and strategy, including digital transformation, leading complex and unique projects in regulated sectors. Helping senior executives and management teams focus on strategic challenges to create a competitive advantage.

Darren Munday is the founder and Managing Director of Reciproco. An experienced executive with over 20 years’ global experience with multinational companies, including Chief Risk Officer reporting to the Board.

Darren is an Honorary Visiting Fellow of the Digital Leadership Research Centre, Cass Business School where he also holds an Executive MBA.  Darren is a Certified Fellow of the Institute of Risk Management (CFIRM) and Chartered Insurance Risk Manager (ACII) of the Chartered Insurance Institute.

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