Renzo Avesani, Risk Management Director at Unipol Gruppo Finanziario, said that the old view of a risk management department as a risk measurement facility – providing risk information to the company without interacting directly with the business practice generating those risks – is out-dated and somewhat dangerous.
Avensani was speaking to an audience of businessmen and women at The Premier Business Leadership Series in Amsterdam about the expanding role of risk management at Unipol, one of the largest insurance groups in Italy. Risk management is now part of a strong, business-oriented experience at Unipol.
The risk management role is now focused on supporting business departments in strategic change, promoting a healthy exit of the economic downturn and gaining a competitive position in the “new normal.” The department is also progressively building a sound risk management practice inside the Insurance Group with a wide and diversified set of risk-taking activities.
In Avesani’s view, risk management must actively design and implement changes in business practices to mitigate risk and help gain profitable results. This must be done by creating direct links between business departments and the risk management department and getting risk management people more involved in managing risk-taking processes and their consequences.
From this perspective, risk management can be seen simply as integration between business execution and business control activities, with a clear understanding of the link between revenue (volume) growth strategies and risk taking. “The leading role in risk management is the CEO role,” says Avesani.
The specific action undertaken at Unipol by risk management, after a recent phase of volume growth that generated a subsequently high level of claims and a strong rise in combined ratio (meaning a strong unbalance between revenue achieved and cost generated by the underwriting process), was helping to design and deliver a new agent network remuneration policy, and balance underwriting and risk generation. With the help of a new and detailed information processing system, Unipol aligned agent underwriting to the company risk appetite. The new policy has already produced positive changes in combined ratio, showing a relevant progress to profitability.
The wider medium-term task that risk management is accomplishing is the setup of a Risk Management Practice based on a sound information management system. The approach that Avesani is promoting is based on a single platform for risk data management that helps feed risk measurement engines and collect their output for integration and management support.
In this way, the proper selection and development of risk management skills is crucial. Risk management people should on one side help grow the risk management capability as a specific department, while moving out of the border of the risk management department and embedding themselves in the business department network that runs the business, thus helping risk management become an integral part of the business.
“The knowledge of the world is only to be acquired in the world, and not in a closet,” says Avesani, quoting Lord Chesterfield.