While embedding enterprise risk management remains a challengefor insurers, large companies are further along, and those that aresuccessful find ERM helpful in decision-making, according to aconsulting firm survey.

The Towers Perrin report, "Embedding ERM--A Tough Nut To Crack,"included many of the world's largest insurers, more than half withrevenues higher than $1 billion and about 16 percent taking in morethan $10 billion annually--representing both property-casualty andlife insurance.

Prakash A. Shimpi, Towers Perrinpractice leader of ERM, toldNational Underwriter there has been a notable development in ERMand that those who have undertaken it are not "resting on theirlaurels."

"Everyone is recognizing that this is serious business, and whenyou start looking at it, you realize there is a lot more to it thanmay have been anticipated," he explained.

An important recognition, he said, is that there is "asignificant amount required to be done in integrating ERM into theday-to-day business."

Although companies are working on economic capital (EC) fordecision-making and performance management, Mr. Shimpi said, theyare not yet there with respect to using ERM "for wider uses such asrisk control and monitoring and reporting."

He added that ERM, and the discipline it brings, has influenceda number of key business decisions. "The fundamental one that hasbeen on people's minds was to be more definitive in articulatingthe risk appetite and surrounding strategy," he said.

Mr. Shimpi noted that even when everything else for ERM is inplace, insurers need to find out if incentives are in place toenable implementation companywide.

Larger companies are more successful at implementing ERM,especially European companies, "not because they are better orworse--they've just been at it a little longer," Mr. Shimpi said,adding that with any type of change management, "time helps, if youdo it right."

The challenge, however, is "confidence that what the top of thehouse is saying in terms of risk appetite is actually beinginternalized and acted upon appropriately by the rank andfile."

The report found that:

o Embedding ERM is still a significant challenge. Towers Perrinsaid less than one-fifth of firms surveyed believe they have anappropriate capability in place for risk control, monitoring andreporting. Thirty-seven percent of respondents said calculating ECis an area where significant work is needed, and just 10 percent ofinsurers believed they have an appropriate capability in place.

o Larger insurers are more advanced in most aspects of ERMimplementation--84 percent already calculating EC, versus 69percent of medium companies with revenues between $1 billion and$10 billion.

o European insurers are better positioned in ERM. Of NorthAmerican insurers, 23 percent feel significant work is needed formanaging market risk exposure, compared to 7 percent of Europeaninsurers.

Under Solvency II, these capabilities are expected to lead tolower capital requirements and create competitive advantage.

o Significant numbers of respondents indicate their ERM programhas resulted in key business changes, including aspects like riskstrategy or appetite, asset strategies and product pricing.

o EC standards are emerging. EC methodology is moving toward aone-year value at risk (VaR) approach; the majority of respondentsuse a market-consistent terminal balance sheet.

o Operational risk remains a weak spot. Only 7 percent believethey have an appropriate operational risk capability in place, and37 percent said significant work is required in this area.

Towers Perrin said that its survey results reflect the"perceived state of ERM implementation just before the latest stageof the financial crisis erupted." However, it said, "key findingsremain highly pertinent in the current environment."