Risk Management for Insurers
First published:
ISBN: 9781782722229
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Non-financial Risks: Operational and Business Risk
Introduction
Risk Management
Financial Economics of Insurance
Underwriting Risks: Life Risk and Non-life Risk
Investment Risks: Market, Credit and Liquidity Risk
Non-financial Risks: Operational and Business Risk
The Financial Crisis: Consequences for Insurers
Insurance Supervision: From Solvency I to Solvency II
Insurance Supervision Outside the EU
Pillar I of Solvency II
Pillar II of Solvency II
Pillar III of Solvency II
Accounting Regulations
Banking Supervision: From Basel I to III
Management Control
Organising Risk Management
Bringing All the Strands Together
This chapter will discuss non-financial risks: operational and business risks. We call these non-financial not so much because they cannot have financial impact, but rather to point out that they are different from the investment and underwriting risks addressed in the two previous chapters. Non-financial risks are not less important, on the contrary. However, non-financial risks are faced in the same way by non-financial institutions (such as shops or factories), whereas investment and underwriting risks are typically only a challenge for the financial industry. The focus on non-financial risks began for the banking industry at the time when they were aiming to achieve a better understanding of the full risk spectrum. Over time, insurers have also adopted the approaches developed by the banks. One thing should become clear from reading this chapter: non-financial risks are much more difficult to capture in economic capital than the risks of the two previous chapters.
WHAT IS OPERATIONAL RISK?
Not so long ago, operational risk was still defined as “everything but market and credit risk”. For many years, operational risk was a catchall for all kinds of incident that did not
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