WIN Magazine - Fall 2017 - 31
8-MINUTE READING TIME
Can wholesalers benefit from implementing an
enterprise risk-management framework?
by JOSEPH F. MORRIS
VER THE LAST FIVE
years, rating agencies
and regulators have
been requiring property and casualty insurance companies of all
sizes to implement an Enterprise Risk
Management (ERM) framework. The
belief is that insurance companies that
implement a risk-aware culture and have
a systematic approach to identify, measure and monitor their key risks will
sustain a consistent level of operating
profitability, which will ensure the company has adequate capital to achieve
its long-term strategic goals. But what
about wholesale insurance brokers and
managing general agents? Can these
entities also benefit from implementing an ERM framework?
The answer, of course, is yes. All financial and non-financial, public and private
entities have realized significant benefits
from implementing an ERM framework.
As insurance wholesalers have expanded
and risks related to technology, regulation, carrier appetite change and various
other risks have become more complex,
there is quantifiable value to implementing an ERM framework.
The purpose of this article is to define
what an ERM framework is and offer
approaches to implementing an ERM
framework for a wholesale insurance
broker or managing general agent.
WHAT IS AN ERM
An ERM framework is a systematic process to identify, measure and manage
the key risks of an entity. It is governed
by an entity's board of directors, managed by its senior officers and applied in
a strategy setting across the enterprise.
COMPONENTS OF AN
* Establish a risk-aware culture.
* Identify, measure, manage and
mitigate key risks.
* Measure enterprise risk using a
capital model and forecast future
capital levels including stress
testing the company's key risks
to ensure that the company has
a sufficient level of current and
A properly implemented ERM framework can produce a number of benefits
* Ensure the company has adequate
capital to achieve its long-term
* Sustain a consistent level of EBITDA
or operating profitability
F A L L 2017 | 31