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IAI Actuarial Core Principles · Business Management · Issues and challenges in each main practice area

A mid-sized Indian life insurer, Suraksha Life, is setting up an enterprise risk management (ERM) framework. The board asks the Chief Risk Officer (CRO) what distinguishes ERM from managing each risk separately within its own department. Which response is most accurate?

ERM looks at risks across the entire organisation together, considering how they interact and their combined effect on objectives and capital. It does not centralise all decisions, ignore unquantifiable risks, eliminate risk, or cover only insurance risk.

  1. AERM replaces the need for departmental risk owners by centralising all risk decisions in the CRO
  2. BERM views risks across the whole organisation together, including their interactions and aggregate effect on objectives and capitalCorrect
  3. CERM focuses only on risks that can be quantified and that have a regulatory capital charge
  4. DERM aims to eliminate risk so that the company never suffers an unexpected loss
  5. ERM is limited to insurance risk because that is the core business of an insurer

Explanation

The defining feature of ERM is a holistic, organisation-wide view of risks, including how they interact and combine. It does not remove business-line risk ownership, is not limited to quantifiable or insurance risks, and cannot eliminate risk.

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