The majority of insurance companies have defined the level of risk they are willing to accept but most are yet to apply these limits across all aspects of their business, Towers Watson said today.
According to the consultancy's latest Global Enterprise Risk Management survey, 74% of insurers have now defined their risk appetite in a statement, but 43% are yet to demonstrate consistency with their risk limit structure.
Ian Farr, global product leader for insurance ERM at Towers Watson, said: 'The ability to articulate risk appetite is a key foundation of risk management, as it defines the types of risk that an insurer seeks and how much risk it is able to take on
'But without effective implementation and relevant monitoring systems, a risk appetite statement will achieve little beyond a tick in the compliance box.'
Despite this, Towers Watson found significant progress in insurers' approach to risk appetite. As well as 74% having documented risk appetite or tolerance statements in place, compared to 59% in 2010, use of risk appetite had increased substantially in specific areas such as asset and investment strategy (up from 66% to 77% between 2010-2012) and strategic planning (up from 55% to 71%).
Risk appetite was also identified as a top priority for ERM development by 40% of respondents, while 39% cited risk monitoring and reporting as another top short-term priority in this area.
Farr added: 'Insurers have made a lot of progress in developing risk appetite as a relatively high-level concept, but few have yet managed to comprehensively roll it out into business as usual. This is likely to be a major focus of insurance ERM programmes over the next two years.'
Towers Watson also found that almost two-thirds (60%) of respondents who had risk appetite statements in place were satisfied with the contribution of ERM to their firm's performance, compared to just 34% of those without a formal risk appetite statement.