BEST’S REVIEW Technology Insight
December 2007
Technology
E nterprise risk management is a The perspective of enterprise risk
By discipline that is as much a busi- being solely catastrophic-type risk is giv-
Gates Ouimette ness opportunity for insurance ing way to the recognition of increased
carriers as it is an internal business individual corporate risk, as well as per-
requirement. By using technologies to sonal risk management. Legislation such
help qualify, quantify, monitor, respond as Sarbanes-Oxley has been introduced
to and measure risk internally, an insurer to decrease a company’s stock risk for
can define its product portfolio within investors, including investor-employees
its commercial lines more effectively. whose life savings can be threatened by
Although risk quantification is what poorly managed, or ethically challenged,
differentiates successful insurers from corporate management.
those who are less successful, the oppor- Despite the increased sophistica-
tunity to use technology in the overall tion of both disaster-based risk analysis
risk process is emerging as another key and financial risk analysis, the recent
financial turmoil associated
Business Enabler
with the mortgage industry is
impacting insurers as well as
other investment firms.While
the risk management world
should be more capable than
Technology is helping differentiator. New risk management ever before, this turmoil is a key indica-
opportunities are increasing and, through tor that there’s still a need for a more
carriers assess their risk a focus on risk innovation, technology disciplined, independent risk perspec-
management needs, becomes a business enabler. tive for corporate financial risk. Inde-
from both internal and A fundamental example of tech- pendent consulting firms focused on
nology and its impact on risk manage- insurance investments, such as Strategic
product perspectives. ment is the alternative risk market—an Asset Alliance, warrant consideration
emerging capital market for risk based upon their broader perspective
management.The concept of elec- on recommended ways to account for
tronic-based financial markets is well risk in insurance investment portfolios.
established, increasing liquidity for risk- While corporate financial and opera-
based assets. Companies involved in the tional risk is a hot topic in today’s digital
original catastrophe modeling software world, the importance of managing risk
arena, such as AIR Worldwide Corp., are to intellectual property (e.g., a brand) has
enhancing their solution set to expand been exacerbated by the proliferation
into this space. Hedge funds and other of blogs, wikis and real media. Start-ups
financial institutions are beginning to such as ReputationDefender have begun
use these products to help evaluate the offering risk-aversion technology to assist
Sophisticated programs, risk of catastrophe-related investments both businesses and individuals in pro-
designed to help insurers to determine the extent of their involve- tecting their brands.
assess risk, are finding ment in the alternative risk market. Other technologies from compa-
While catastrophic, or disaster- nies such as Varolii Corp. also can be
broad application. related, risk has been a well-defined focus part of overall risk mitigation and ongo-
in the insurance industry, the sophistica- ing risk management programs, via
tion of applications helping insurers proactive communications to decrease
with risk valuation continues to evolve. financial risk and reactive communica-
Enhancements in better understanding tions to decrease disaster-based risk
the financial impact of this type of risk is impact.Technology solutions such as
evident in the progress of property cost these can be bundled by insurers as
estimation solutions, eliminating some of part of their risk management lines.
the unknowns when packaging risk for Whether it’s catastrophic risk or
reinsurance or capital markets. corporate financial risk, the technology
to help insurers assess risk continues to
Gates Ouimette is a Best’s Review col- evolve. It warrants a carrier’s corporate
executives to keep a pulse on their overall
umnist from Massachusetts. He can be
reached at gateso@yahoo.com. risk management mission. BR
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BEST’S REVIEW • DECEMBER 2007 • REPRINT
Copyright © 2008 by A.M. Best Company, Inc. All Rights Reserved. Reprinted with Permission.