ERM has many definitions. The generally agreed concept is that ERM is wider than traditional risk management and covers all the risks within an enterprise (or company). Traditional risk management focuses on identifying risks, measuring and monitoring risks and designing strategies to limit losses to agreed limits. ERM recognises that businesses take risks in order to make a profit for their owners and therefore considers the upside of taking risks, and attempts to strike a balance between too much risk and not enough risk compared to the enterprise’s strategic direction. Risk is managed holistically in a fully integrated framework, across all different risk types and the different functions/companies within the organisation.
The call for research
The profession would welcome proposals in the following areas:
- How should firms define and use “risk appetite”, but with the emphasis on the need that outputs should be practically grounded and expressed.
- How should firms identify and assess the hard to define risks – what techniques are available and how do they work in practice? This topic could possibly be linked with practical techniques for reporting on emerging risk and strategic risks, to mirror text from the recent Walker Report (see separate Appendix at the end of this paper).
- How should firms report and communicate tail dependencies and correlations to stakeholders including senior management, the Board and regulators. This includes mechanisms for reporting, and the need for effective communication. Note that the credit for diversification benefit can often be the largest single item in a firm’s assessment of its capital requirements, and hence it can be 'worth millions (if not billions)' to get this right.
The research proposed should concentrate on enterprises whose main business is the acceptance or transformation of risk, where the focus would not be limited to the negative aspects of exposure to risk but also the potential of managing risk successfully to enhance the enterprise’s potential. A preference will be shown to proposals that can be applied across traditional actuarial practice areas and more widely.
The successful proposal will be one where practical solutions are proposed to the questions set out above, including specimen output for a variety of notional case studies, and where the proposer can demonstrate how the research will benefit the users of actuarial services in the ERM arena. The Profession are encouraging proposals that concentrate on the development of future practice in this area that is innovative, but also practical and attainable, and which will make a significant contribution to the development of thought. Whilst the limited use of surveys is not ruled out, we are not anticipating surveys of current practice and opinions but a focus on future thought leadership in ERM.
If you have any questions or wish to discuss any aspect of IFoA research please contact the Research and Knowledge Team:
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