Facing enterprise risk head on: Tips for leveraging technology as a facilitator in your ERM strategy

Recently, there have been shifts within the insurance industry to overcome the continued talent shortage, the antiquated technology still plaguing many organizations, economic and social inflation and climate change. Despite the increased attention and education focused on risk management across all industries, insurance organizations are struggling to fill open positions in almost every department. Because of this, the urgency to embrace better processes and new technologies like artificial intelligence (AI) and machine learning (ML) has grown significantly. Though the internal systems that insurance organizations are using have evolved significantly throughout the years, there is still a notable disconnect. The insurance industry is still very much in the preliminary stages of technological advancement.  

Economic inflation and climate change have both greatly impacted the property and casualty insurance industry, especially in the areas of auto insurance and real estate. Property carriers are raising rates, in some cases even 20%, in an attempt to combat the rising costs associated with more severe weather. These rates will only go up as time progresses, but many insurance organizations are starting to embrace AI as a tool to analyze data surrounding climate change to make more informed decisions about where they provide coverage.   

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More insurers are embracing the adoption of cloud-based software and digital solutions to help face organizational risks head on by replacing disparate legacy systems and establishing new strategies and data governance programs. Technology is improving and changing faster now than ever before. Despite this, we still see a lot of insurance organizations continuing to use outdated general ledger and policy administration systems, claims systems and reinsurance systems that were developed in the 1990s and early 2000s. Many of these systems are demand key and now-retired consultants are often brought in to train new employees because colleges and universities no longer teach them.  

Updating your current systems or even incorporating entirely new systems allows you and your employees to focus less on system management and time-consuming mundane tasks and more on analyzing the data to make informed business decisions. It also allows for a more mature control environment as controls move from manual to automated. One of the biggest benefits of a digital transformation is that most cloud-based data models are much more functional, and it is less essential that the user has computer science acumen. New technologies have the power to free up resources within your organization allowing you to focus more on strategy and value-added activities, which not only reduces risk but supports the retention of your employees.  

One of the main (and most expensive) risks facing organizations in every industry is what is best described as “human risk.” Humans make errors and mistakes often, and the best way to minimize this risk is with technology and automation. While you cannot replace employees with technology, you can use technology to help your employees with mundane tasks which will increase moral overall and limit human error. AI-driven monitoring systems can even enhance safety by predicting and alerting about potential hazards in the workplace.  

Another risk associated with “people” is around the need to attract, hire, develop and retain top talent. Over the past several years, there has been a continued talent shortage within the insurance industry, especially in the areas of finance, information technology (IT), data science, actuarial services and underwriting. In the United States, the recent low unemployment rate, down to less than 4% as of March 2024, equates to a very low labor supply and it is making it even more challenging to fill open positions. The lack of balance between supply and demand has turned talent acquisition and retention into a struggle, and because of this it is a risk that organizations need to be aware of and focus on.  

As data becomes more and more democratized and new ground is broken with the advent of new and evolving technologies, the best defense is a robust data governance program. The role of data governance in any digital transformation is essential and should not be underestimated. The main objective of a strong data governance program is to be able to always answer these important questions:  

1. What data do we have in our possession? This should include proper records of data assets, data lineage and even definitions via a data dictionary. It is hard to manage data for any use without first knowing what you have in your possession.  
2. How can we use this data? It is important to have clarity on what the permissible use for these data assets to ensure you are complying with all of the related rules and regulations.  
3. How are we managing and protecting this data? You need to actively manage the data your organization has at its disposal. This includes a clear documentation of rules, responsibilities and the processes by which you handle the data throughout its entire life cycle.  

Once you understand your data and have a strategy established, your organization’s adaptive data governance program should be collaborative across all facets of your business, able to grow as you grow, proactive and agile. For a more in-depth explanation refer to our article, Establishing a framework for practical data governance in the insurance industry.