StoneRiver, a provider of a wide range of technology software solutions and services to insurance carriers, agents, and broker-dealers, conducted a survey for the second year which indicates a lack of enterprise risk management and readiness for a changing regulatory climate. The goal of the survey was to gauge the opinions of insurance industry professionals about regulatory and accounting-related issues.

The “Financial Regulatory Survey” found that only half of respondents have an enterprise risk management (ERM) process, and 23 percent of them said it’s not a formal process with reporting. Twelve percent of respondents are in the process of developing an ERM process.

As the leading approach to managing and optimizing risks, ERM determines how much uncertainty is acceptable within an organization, providing companies with a strategic risk analysis that cuts across business units and departments and considers end-to-end processes. By adopting ERM, a company gains the ability to align its risk “appetite” and tolerance with business strategy. As a result, management can better manage risk “opportunistically”–they can identify events that could have an adverse effect, determine whether the benefits outweigh the risks and develop an action plan to manage them. In other words, proper risk management allows organizations to examine and evaluate opportunities and create value by taking risks carefully.

"Responses to some of the survey questions were not surprising, but they were disheartening,” said Connie Jasper Woodroof, StoneRiver liaison to the National Association of Insurance Commissioners (NAIC). “In today's business atmosphere, a company needs to stay current on looming regulatory issues so the organization can move ahead with a plan when those regulations go into effect.”

The survey addressed seven topics: Own Risk and Solvency Assessment (ORSA) requirements, compliance assistance and information resources; plans to manage the potential transition to International Financial Reporting Standards (IFRS); primary information source for IFRS; the ability of accounting software and reporting tools to provide the detail required for ORSA and/or IFRS requirements; plans to use ORSA/IFRS requirement changes project to achieve additional discretionary objectives; and perceptions of the reinsurance model revisions.

Once ORSA requirements are finalized, 44 percent of respondents said they have the in-house expertise and would not use outside consulting services. Forty-two percent of respondents indicated consultants, including CPAs and actuarial firms, would be the primary information sources for ORSA; almost half (49 percent) would rely on NAIC. The remaining 9 percent would rely on IASA and others.

If International Financial Reporting Standards (IFRS) were to become a requirement, almost 30 percent said they would "learn as we go." And nearly 60 percent doubt the readiness of their current software and tools to handle future requirements, especially the detail required for ORSA and/or IFRS requirements.

The majority of respondents have not yet had the time to analyze the Reinsurance Model Revisions, and 22 percent “expressed apprehension about how well it will work to have regulators determining approved jurisdictions and assigning insurer ratings.”

The survey results are based on 68 responses, representing a mix of property/casualty, life, health, workers' compensation insurance companies, and reinsurance companies.

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