Almost one-third of insurance companies have no plans to increase the link between their executive pay and risk, despite the importance they attach to risk management, Towers Watson has found.
The consultancy's survey of chief risk officers, chief financial officers and chief actuaries found that 54% of firms take risk into account in their current executive compensation arrangements.
However 30% of respondents had no plans to increase the links between the two, despite viewing their company's current approach as unsatisfactory.
Mike Wilkinson, a director of the insurance management consultancy at Towers Watson, added: 'Responsibility for risk management lies squarely with boards and senior executives: communicating risk appetite and setting expectations on risk-taking. They need to live and breathe the risk culture, so we find it surprising that so many insurers appear to be shying away from taking the next step of linking pay to risk-related return metrics.'
Andrew Marshall, director of executive compensation at the consultancy, noted that recent European legislation affecting the financial services sector showed regulators were looking for companies to take a holistic approach to risk management - including linking pay to risk.
'Companies will need to prove that they operate with a strong pay and risk governance model, that pay structures are compliant with the relevant regulatory rules and guidelines, and to demonstrate that appropriate risk-based values and behaviours are reflected in performance management and related pay decisions,' he said.
Towers Watson's survey also found significant progress in enterprise risk management activity at the insurers surveyed, with two-thirds of respondents stating that risk culture and risk control techniques had helped to enhance their business performance in the past two years.
Almost nine out of ten (86%) of those surveyed expect further investment in risk culture, such as creating a common understanding of risk management throughout their company, would bring further benefits to their business.
'Insurers firmly believe that a stronger risk culture will add value to their organisations, but achieving full implementation requires a progressive approach over a sustained period,' Wilkinson noted.
'Aligning remuneration to risk can only be introduced once expectations have been established. Underpinning progress through performance management techniques and appropriate incentives is an important part of the process.'