The award-winning SOA slogan “Risk is Opportunity” rose in popularity over the last decade. Whether analyzing risks, measuring risks or considering the optimal way to mitigate risk, there seem to be endless opportunities for actuaries to excel in the field of risk management.
The Actuary asked several chief risk officers to provide perspectives on emerging changes in the risk landscape and the current risk environment, and to reflect on the pursuit of career trajectories in risk. Suzette L. Huovinen, FSA, CFA, CERA, MAAA, chief actuary and chief risk officer at Securian expressed one thought-provoking idea: “Risk management is a great way to get a broad perspective on an organization. You must understand all aspects of the business to truly identify and manage the risks. It’s critical to be good at asking questions—don’t be afraid, there are no stupid questions!”
During the last 20 years, what changes had the most impact on the risk landscape?
Randi Ellen Woods Marsh, FSA, MAAA, CERA, VP Operational Risk and Corp Business Unit CRO, Principal Financial Group: Technology, technology and technology! Technology has changed every aspect of business in the last 20 years, and in doing so has had the most impact on the risk landscape. Think about the companies that didn’t exist 20 years ago or had little influence, such as Amazon and Facebook. Back then cell phones had limited capabilities, and robots were still the realm of science fiction. Fraud has evolved from individual claim fraud (which still exists) to cyber fraud and attacks by nation states. Customers today expect an experience in which they connect electronically, have access to all their data and can execute any transactions, at the same time companies are tasked with protecting the data that the customers, themselves, expose.
Doug Caldwell, FSA, MAAA, CERA, executive vice president and head of Investment Risk, Model Risk, Governance & Reporting, and MetLife US chief risk officer, MetLife: Technology and the financial crisis of 2008–2009 … the financial crisis reminded us all that highly significant market events can take place and that risk management is most important prior to a crisis. Once the crisis starts, there are few levers to manage the balance sheet until markets stabilize.
During the last 20 years, what technological advances had the most impact on effectively managing risk?
Erwin Martens, executive vice president and chief risk officer, retired, TIAA-CREF: When done right, data management—it has resulted in successful board collection, effective big data concepts, artificial intelligence (AI) help for screening and interpretation of meaning and useful repositories, among other things.
What are the most efficient techniques to capture and assess all relevant risks?
Charles Schwartz, chief risk officer, Venerable Holdings Inc.: The insurance risk profession is adept at capturing and assessing the risk of “known unknowns,” less so the “unknown unknowns.” For example, most risk departments are good at answering the question “what would happen to the value of our company in a ‘2008-crisis repeats’ scenario,” even though nobody knows when or if that market shock will again happen. Answering such questions is appropriate but not enough: It takes imagination and knowledge of market, macroeconomic and policyholder trends to begin contemplating new risks and scenarios that have yet to happen but with some probability could still happen. Forewarned is a prerequisite to being forearmed.
Suzette L. Huovinen, FSA, CFA, CERA, MAAA, chief actuary and chief risk officer, Securian Financial: I am a big believer in asking for views from multiple people inside and outside of the company to think about both current and emerging risks. I also believe greatly in thinking through various scenarios and how the company would react. Models are great, but often the dialogue in the scenarios drives much more than you could capture in a model.
What advice would you give your younger self, if you had known you were to become a chief risk officer?
Martens: Develop and advance lines of communication throughout the company from day one. Maintain simple practices, such as checklists (airlines have used them successfully in the most complex environments). Practice risk management by walking around results in physical and impromptu meetings throughout the front, middle and back office layers. Do periodic reviews of real-world failures and success in other industries.
What advice would you give to other actuaries who work in, or are aspiring to work in, a risk function?
Woods Marsh: Realize that what you are exposed to in a traditional actuarial role is just the tip of the iceberg that constitutes the risk profile of the business. Get some operations experience. Operational risk is where most of the risks are that are hard to find. Financial and product/pricing risk oversight is mature, but operational risk is still being developed at most companies. It’s where you can add the most value. Learn to put your ego aside and ask good questions, then listen with an ear toward learning and thinking through what could go wrong. Actuaries are trained to consider tail events while most operational folks develop processes assuming normal operations.
Caldwell: Learn to communicate your analysis, concerns and challenges in clear and relevant ways for company management. Great technical work will go underutilized if not communicated—verbally or written—in a relevant, transparent and business-focused manner.
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