Tag Archives: enterprise risk management

Emerging cyber risk regulations will move companies to fortify risk management strategies

New York has enacted regulations to protect the state’s financial services industry and consumers from cyberattacks. Future regulation may require a reliable, evidence-based approach to risk assessment as a minimum requirement for compliance.

In this article, Milliman’s Mark Stephens and Lisa Henderson discuss the evolution of cyber risk and the need for companies to understand their cyber risk exposure and the financial implications of a potential cyberattack event. They also outline several actionable steps companies can take to assess and quantify their cyber exposure.

The Times of London: Why your risk team needs to become your insight function

Business today moves at lightning pace, and this rapid pace of change is leading to an evolution in risk management. In a recent article in The Times of London, “Why your risk team needs to become your insight function,” Milliman consultant Neil Cantle writes that traditional forms of risk management are quickly becoming too slow to anticipate or enable meaningful reaction. More and more, writes Cantle, companies are embedding new technology and automation into their risk management processes, and risk teams are evolving to help businesses embed risk-thinking into their daily activities. The full article can be accessed via the link above. For more information on Milliman’s work in enterprise risk management, click here.

To optimise financial decision-making, human-and-machine iterative process proves most successful

Milliman has announced that an innovative new study examining multi-criteria decision-making using an iterative process of advanced computing and human input has shown superior results in risk management when compared with machine algorithms or humans alone.

Using an illustrative example from the life insurance industry, the study looked at how optimisation techniques can be used to develop insights into drivers of economic capital within an internal model framework, and how to then use these insights for risk management decisions. The findings illustrate that advanced computing, visualisation, and complex systems-mining techniques that include expert input can deliver superior optimisation results when faced with multiple objectives and multiple constraints, which machine algorithms alone find challenging to resolve.

While not obvious at the outset, combining human input with advanced computer modeling allows domain experts to analyse results and elicit insights into features that subsequent iterations of a model should contain, thereby refining the process.

Milliman’s study employed the DACORD platform from DRTS, Ltd. to support its system-mining efforts. ‘Future states are unknown, involve human affairs and are therefore complex,’ says Jeff Allan, CEO of DRTS, Ltd. ‘Augmenting experts with the appropriate tools and processes can aid the reasoning and evaluation of a range of solutions.’

Adds Milliman’s Corey Grigg, ‘Looking toward the future, this sort of optimisation technique can extend to big data, simulations, and enhanced visualisation, ensuring that even as the complexity of our data and problems increases, experts can continue to add value.’

The results suggest a number of practical applications for enterprise risk management (ERM) in the insurance industry, including finding patterns in key risks driving capital losses and understanding diversification in order to enable quick judgements about the similarities and differences in the risk profiles of different portfolio elements.

Milliman’s Optimisation study was conducted in conjunction with Dr. Lucy Allan of University of Sheffield. To read the entire study, click here.

Board oversight of emerging and long-distance risks—and how ERM can help

holly-gregoryFounded in 2011, the Milliman Risk Institute provides scientific-based thought leadership on all facets of enterprise risk management (ERM). Composed of senior risk executives, actuaries, and university professors, the Milliman Risk Institute Advisory Board meets semiannually to discuss ERM trends, research, and key topics.

Risk-taking lies at the heart of all entrepreneurial activity, and monitoring management’s efforts to identify, monitor, and manage risk is a key responsibility of the board of directors that is closely linked to the board’s role in overseeing corporate strategy and performance. The board has a vital role to play in assisting management to:

• Focus on the risks associated with corporate strategies and the ever-changing business and geopolitical environment,
• Determine the company’s risk appetite
• Devote appropriate resources to risk identification and management activities.

Prudent risk-taking requires reliable information about the trade-offs in risk and reward and a fundamental understanding of risks associated with the drivers of corporate performance. Management is responsible for capturing this information with the assistance of the enterprise risk management (ERM) system it puts in place to help identify risks and their possible impacts.

Identifying and understanding both emerging and long-term risks can be difficult, and boards should press management to continually scan the environment and think about both the immediate future and the longer-term outlook. The challenge is to escape overreliance on data that by its nature is focused on the past.

The good news is that both boards and managements have become more savvy over recent years with respect to risk oversight, particularly since the global financial crisis. Many boards are currently focused on geopolitical risks relating to Brexit and the recent U.S. presidential election, and are grappling with what uncertainties may lie ahead and what the company can do to prepare. Boards are also beginning to pay more attention to risks relating to the Internet of Things—in addition to cybersecurity, which has been top of mind for many companies for some time now. Some boards have also added directors with specialized competencies to help navigate risks of particular concern to individual companies. For example, technology and/or cybersecurity expertise are on the “wish list” of new director backgrounds for many companies (per the Spencer Stuart Board Index 2016).

ERM professionals can help boards “look around corners” with respect to emerging risks and provide support to boards that are determining what to do next. They can also help boards understand the time horizons involved with respect to risks such as those relating to climate change and water rights that require longer-term thinking, and they can assist the boards in prioritizing discussions on longer-term issues. Boards should ensure that there is sufficient time on the agenda to discuss emerging and long-distance risks, in addition to more typical risks, and pay attention even when something might not seem mission-critical. The world is constantly changing at an ever-increasing pace and risk managers help boards stay in front.

Holly Gregory is a member of the Milliman Risk Institute Advisory Board. She is co-leader of Sidley Austin LLP’s Corporate Governance and Executive Compensation practice. As part of this blog series, we asked Holly to share her views on trending topics in ERM.

Top 15 U.S. articles and reports for 2016

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In 2016, Milliman consultants wrote articles and worked on studies covering a range of practices and areas. Healthcare was a hot topic again this year, and topics included value-based payments, risk adjustment, and the Medicaid managed care rule. Other articles—about student loan debt and daily fantasy sports—were also popular. Here’s a preview of the top 15 U.S. articles and reports for the year.

15. Financial analysis of ACA health plan issuers, By Daniel J. Perlman and David M. Liner

14. Are you ready for the new world of value-based reimbursement?, By Marla Pantano

13. Encounter data standards: Implications for state Medicaid agencies and managed care entities from final Medicaid managed care rule, By Jeremy Cunningham, Maureen Tressel Lewis, and Paul R. Houchens

12. The elusive nature of private exchanges, By Mike Gaal

11. Money market update for 2016: The rule that you should be aware of, By Jeffrey T. Marzinsky

For a summary and link to all of the articles, click here.

Top 15 global articles and reports for 2016

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Milliman’s most viewed articles worldwide in 2016 covered topics including pensions, student loans, value-based payments—and Pokemon Go. There were also pieces on Solvency II, encounter data standards, and managed care regulations. Here is a preview of the top 15 global articles and reports for the year.

15. Financial analysis of ACA health plan issuers, By Daniel J. Perlman and David M. Liner

14. Telemedicine and the long-tail problem in healthcare, By Jeremy Kush and Susan Philip

13. Public Pension Funding Study, By Rebecca A. Sielman

12. Life insurance risks: Observations on Solvency II and the modeling of capital needs, By Stephen H. Conwill

11. Encounter data standards: Implications for state Medicaid agencies and managed care entities from final Medicaid managed care rule, By Jeremy Cunningham, Maureen Tressel Lewis, and Paul R. Houchens

For a summary and link to all of the articles, click here.