Importance of ERM

There is no standard definition for the term Enterprise Risk Management (ERM).

In a nutshell, ERM involves managing risks in a holistic manner so that threats (and opportunities) can be identified and monitored centrally. In theory, this should allow a company to react quicker to unforeseen problems; or to be able to take advantage of opportunities quicker than its competitors.

Evidence

There is a lot of literature available concerning whether ERM achieves its objectives. Some evidence exists to support a measure of success for larger firms: Including improved profit stability, better credit ratings, improved communication on risks to stakeholders – most of which can be attributed to some extent to their ERM programme. However, there is still a fair amount of debate on how effective ERM is compared to the costs involved.

Experience

Personally, I first became interested in ERM about 15 years ago following my experience during the acquisition of a small insurance company. I witnessed how operational errors could significantly erode shareholder value if not identified and corrected over time. I’ve been a fan of ERM ever since.

I learned a lot about the management of long term insurance business from that experience. Some problems may take a long time to be identified and their impact can compound over time. Perhaps the most important thing about ERM is the structure it enforces to manage and mitigate risks.

How we can help

Among other benefits, ERM allows firms to identify risk exposures that may be more efficiently managed in-house. We offer a range of services to help with the identification, management and mitigation of risks.

R. Brown