Lack Of Standard Approach, High Costs Can Complicate ERM Initiatives

Implementing ERM can be challenging because the discipline itself “has not achieved a consistent, standard approach,” says Stefan Holzberger, vice president of rating criteria and regulatory-policy development at A.M. Best. 

“So depending upon which consultant you talk to, or which broker you talk to who can help companies with their ERM capabilities, there is a vast inconsistency from one approach to the next.”

Part of the inevitable reason for this is that companies are structured differently, managed differently and have very different risk tolerances, he says.

“An ERM focus for one company might be more of a defensive position, to make sure they don't lose X-amount of dollars in a given year or quarter,” Holzberger says, while another company might use ERM to take more risk and be more aggressive in the market.

Peter Dickey, assistant vice president in the reinsurance-ratings division with A.M. Best, points out that the costs associated with an ERM implementation can be a big challenge as well. 

“You have to hire people, to invest in systems—and not every small regional company has that capacity,” he says.