Risk Indicators

Cathy Hampson and Gustavo Ortega

INTRODUCTION

Risk indicators form part of a comprehensive operational risk framework within an insurance company. If defined and implemented in line with an organisation’s risk appetite, key risk indicators (KRIs) can be predictors of risk exposure and help identify issues before they can manifest into operational risk events. Generally, KRIs monitor changes in the operating environment and contribute to the early-warning signs that can enable organisations to take proactive measures to prevent operational risk losses.

In order for KRIs to be effective, we must understand an organisation’s business profile and critical processes, which will enable better identification of relevant data and allow for adoption of appropriate risk indicators and monitor performance consistently. Many organisations are known to have identified hundreds of KRIs and use this number to manage and monitor risks across different business lines, and in some instances across key processes. However, quantity is actually not what is important within a risk-indicator programme: instead it is the quality of the data and relevancy of the metric against a given process or within a given business line.

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