Best operational risk initiative: Oric’s Scenario universe and Principles of operational risk management and measurement

The consortium wins with a definitive set of op risk scenarios that insurers can use to identify which one is relevant

Caroline Coombe, chief executive of Oric International

OpRisk Awards 2016

When it comes to managing operational risk, the insurance and reinsurance industry faced a thorny problem: the scarcity of operational risk event data makes assessing exposures problematic, but sharing it among competing firms is difficult due to its commercial sensitivity. Meanwhile, the introduction of Europe's Solvency II risk-based capital regime created a clear need for insurers to understand and be able to model their operational risk profile.

Step forward Oric International. "The insurers realised they didn't have enough internal loss event data, so they came together to share information and get a better understanding of the risks they faced," says Caroline Coombe, chief executive of the London-based consortium, which now counts 40 insurers, reinsurers and asset managers as members.

Its flagship service is its Risk Intelligence platform, which includes a database of more than 8,500 anonymised risk events submitted by member firms, as well as more than 19,000 risk events from the public domain.

What differentiates us is the qualitative nature of the data we collect. A major part of Oric International's role is to ensure the anonymity of the data is preserved
Caroline Coombe, Oric International

"As with any industry body, Oric International is about our members coming together to tackle common challenges. What differentiates us is the qualitative nature of the data we collect," says Coombe. "A major part of Oric International's role is to ensure that the anonymity of the data is preserved – we have made significant investments in our platform to ensure that."

The system, which offers analytical capabilities and generates quarterly analysis covering trends in the data, also allows consortium members to benchmark their operational risk profile against their peers. The platform also houses libraries of more than 180 detailed scenario specifications and more than 2,500 key risk indicators and control specifications.

In May, Oric launched its Scenario universe publication, which Coombe describes as a definitive set of operational risk scenarios that insurers can use to identify relevant scenarios, and benchmark those they are using in their operational risk management.

"There is probably no other resource that can enable an insurer to test the completeness of its risk registers or scenario suite," says one risk manager at an Oric member firm.

Risk practitioners say they have found another recent publication, Oric's 2015 Principles of operational risk management and measurement, to be similarly helpful.

Solvency II usefulness

The value of the information collected by Oric International and shared among its members was demonstrated by the first wave of applications to the UK Prudential Regulation Authority (PRA) to use internal models to calculate Solvency II capital requirements. These internal models, if approved by the PRA, typically allow insurers to hold less capital than would be required by a standardised model. Of the 19 approvals announced by the PRA in December last year, 13 were members of Oric.

While Solvency II provided the initial spur for the establishment of Oric International in 2005, its introduction in January this year doesn't mean that the consortium's work is now done.

"Absolutely not," says Coombe. "It's the end of the beginning. Our work now focuses on working with our members to embed operational risk management further into their businesses, improve operational risk management frameworks and processes, as well as project work, including on risk tolerances, emerging risks, culture and cyber risk."