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Introduction

Many firms in the insurance sector are under pressure to pursue a growth agenda ~ to launch profitable products and services in search of new revenue streams.

In previous articles #5 – The Entrepreneurial CRO: An integrated approach to risk, capital management and strategy, we proposed that to create and capture enterprise value, the Chief Risk Officer (CRO) should define Key Success Factors.

This can be challenging for any CRO, especially in an environment that is undergoing significant and rapid change and where industry boundaries are continually being blurred.

In the following article, we attempt to set out a high-level thought process that can help CROs begin to consolidate a diverse range of activities that take place across the firm into specific themes.

Each theme would then be subject to further analysis and investigation, dependent on the nature, scale and complexity of the firm.

(1) Strategic Planning

Whether you work in the London Market and are required to submit a Syndicate Business Forecast to the Lloyd’s Corporation, or the Company Market ~ your Strategy & Planning Group will most likely have developed a Three Year Strategy.

Whilst most people agree today’s requirement is for an ‘Always on Strategy’, there will be a document setting out the firm’s Strategic Priorities.

Every year, this document is ‘dusted off’ and reviewed by the Board during a Strategy Away Day. In the lead up to this review, there will be lots of analysis and discussions about ‘Strategic Options’ including opportunities to innovate the Business Model.

Once agreed, the Strategic Priorities are translated into a Syndicate Business Forecast or Operational Plan, supported by Key Performance Indicators (KPIs). These KPIs may contain assumptions and their delivery will be subject to both ‘threats and opportunities’ inside and outside the firm.

(2) Key Success Factors

It is paramount to understand the firms strategy and secondly, a detailed understanding of the drivers of each Key Success Factor.

This can be challenging, particularly as many business strategies are articulated in complicated Business Plans and spreadsheets. If everyone in the business is to understand the direction of travel, the strategy must be easily visualised.

By ‘Mapping your strategy’ across four key characteristics, the CRO can really begin to pinpoint which ‘levers’ they can push/pull on to deliver competitive advantage:

  1. Financial
  2. Customer
  3. Internal Processes
  4. Learning & Growth

(3) A practical example – Financial

Whether it is identifying new revenue streams or altering the Capital Structure, it is important to link this back to other sources of information.

Horizon Scanning (Sensing, Hypothesis Testing and Trigger Analysis) provides an opportunity to identify new threats and opportunities, that may result in [planned/unplanned] deviation from Operational Plan KPIs.

An unplanned deviation might arise from a competitor who has launched an innovative business model, that offers a new value proposition to your target customer segment.

By embracing the innovation process, which starts with the generation of lots and lots of ideas, the CRO can prioritise, allocate resources, adopt experimental learning and launch rapid prototypes.

Final Comment

There are many examples where CROs could ‘innovate’ existing Risk Processes to deliver incremental improvements. Others may have the potential to deliver outperformance.

 

  1. Stress & Scenario Testing ~ incorporate Horizon Scanning into the development of scenarios that can be used to challenge Operational Plan KPIs
  2. Reverse Stress Tests ~ whilst traditionally used to identify the point at which the business is no longer viable, the outputs could be used to identify opportunities for Business Model innovation
  3. Business Planning ~ Exploit under-utilised Risk Appetite capacity by allocating capital to growth Lines of Business
  4. Capital Structure ~ Secure a mixture of own and trade capital to reduce the ‘Return on Equity’ hurdle

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.


All rights reserved. Unauthorised use and/or duplication of this material without express written authorisation from Darren Munday is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Darren Munday with appropriate and specific direction to the original author and content.