Insurer of the year: AIG

Operational Risk Awards 2017: Insurer has harnessed the power of its entire workforce for op risk effort

(From left) AIG’s Maureen Kelly, Sucharita Banerjee Lodha and Robyn Doughty

No one likes a critic. So why is AIG so keen to transform its workforce into an army of faultfinders? The answer is simple: because that could save the company millions of dollars.

The company’s continued status as a US systemically important financial institution – as decreed by the US Financial Stability Oversight Council – and global systemically important insurer – as determined by the supranational Financial Stability Board – has elevated the discipline of operational risk management to the utmost importance.

Indeed, taming op risk is considered so essential to AIG’s post-financial crisis development that senior management wanted every single employee to be included in the firm’s op risk control function: that’s over 50,000 employees in over 80 countries and jurisdictions.

Enter the Raise Your Hand programme, introduced in 2015 and rolled out company-wide in 2016. Its objective: to provide all employees with the awareness, training and resources to help them call attention to any op risk issues and in turn increase the reporting of potential loss events and vulnerabilities in the firm’s op risk framework. 

Gus Ortega, head of corporate operational risk management, was one of the senior managers charged with launching the initiative. “All employees have the potential to identify and address risks; all should be part of the solution, and all should feel free to report an event without fear of reprisal,” is how he describes the philosophy underpinning Raise Your Hand.

“It has created a culture of accountability and empowerment, which has helped us to be more proactive risk managers. You can put all the sophisticated tools and programmes in place, but if you don’t have active use from the business you are going nowhere. Raise Your Hand is the support system we have been striving towards,” he says.

That business line buy-in was secured with the help of operational risk executives Lou McNeal and Sid Medappa, who agreed risk management has shifted from an effort undertaken by a distinct group to an ongoing practice that all employees with all types of responsibilities exercise. Raise Your Hand was also sponsored by AIG’s chief risk officer, Alessa Quane, and chief operating officer, Jeff Hurd, so each operating unit had skin in the game.

The initiative consists of two components: an educational programme to impress on AIG employees their responsibilities as op risk controllers; and an addition to the firm’s GRC (governance, risk and compliance) tool to allow employee-identified data to be easily reported and catalogued.

Implementation was no easy feat. AIG had to compile its own e-learning platform on operational risk and distribute this across every layer of the organisation with classroom training sessions for select functions and mandatory e-learning for all. Ortega also oversaw the training and deployment of over 1,000 risk event co-ordinators to act as advocates for Raise Your Hand. No part of the business was exempt from the programme and no one was given a pass on the training.

Ortega explains that this education of the workforce was needed before opening up the GRC system to their inputs, otherwise the tool would have been swamped with more noise than signal.

“When you open the gate, you expect a significant amount of items to come in. So before that, we wanted a disciplined workforce. That has manifested itself in a new risk culture where events are reported without any level of fear, where we have become a learning organisation,” he says. 

Ortega reports that, as a consequence of Raise Your Hand, in 2016 almost twice as many risk events were reported to the op risk function than in 2015.

“Our risk profile hasn’t changed – but our understanding of where the risks are coming from has,” he says. 

The initiative is also already saving the firm from potential op risk losses. For example, Ortega explains members of AIG’s control function used the Raise Your Hand reporting system earlier this year to implement additional testing protocols related to the launch of a new change management system.

“Some issues and operational risk exposures may not have been captured without Raise Your Hand and we may have incurred operational risk losses otherwise,” says Ortega. 

Information shared thanks to the Raise Your Hand initiative has allowed AIG to optimise risk management when undertaking new systems roll-out, process changes and redesign. It has also increased the firm’s general understanding of its risk sensitivities, enabling it to minimise operational disruptions and keep business activities running smoothly.

“It’s been a major culture shift that has shown many rewards,” says Ortega.