2017 Insurance CRO Forum

The annual Insurance CRO Forum was held at the Actuaries Institute on Monday 19 June 2017. The aim of these forums is to get the Chief Risk Officers from life, general, health and lenders mortgage insurance companies together to discuss a topic of interest. Gavin Pearce reports.

For this year’s forum there were 17 people registered, of which seven were actuaries (not that we were counting). The topic discussed at the forum was “Outsourcing & Third Party Risk”. The subject was discussed from three very different perspectives during the half day forum – a procurement manager, a risk manager, and a Board director.

The formal proceedings started at 9:15am with a formal welcome by David Bell (CEO, Actuaries Institute). Whilst David suggested he knew nothing about risk management, he then shared his thoughts on reputation risk (showing he does have some risk management knowledge). As the Convener of the Organising Committee, I then made some opening remarks. I postulated that relying on organisations outside the core insurance company to provide vital elements of its service to customers and compliance with regulatory requirements needs careful management, strong risk controls and governance oversight. I suggested that whilst the dollar benefits of such arrangements are usually quite evident, sometimes the risks are not – misalignment of incentives and motivations, differences in culture, 4th and 5th party risks (i.e. where the insurer outsources an activity and creates a reliance on the service provider’s own supply chain), and political risks if your business partner is in another country.

The forum consisted of three plenary sessions:

• Plenary 1 was presented by Daniel Tuddenham (Head of Outsourcing, AMP – Alliances Group) and Derrick Au (Commercial Manager, AMP – Alliances Group) who discussed outsourcing from a procurement perspective.
• Plenary 2 was presented by Simone Leas (Head of Group Risk and Compliance, ClearView Wealth Limited) who talked about the implementation of the APRA Standard CPS 231 at her organisation.
• Plenary 3 was presented by David Plumb (Non-Executive Director, icare) who shared his views on outsourcing and third party risk from a Board member’s perspective.

During the forum the Chatham House Rule was in effect. That is, participants are free to use the information received, but neither the identity nor the affiliation of the speaker, nor that of any other participant, may be revealed. So, if we told you what each of the speakers and participants said we’d have to kill you. Having said that, some of the highlights from the forum discussions were:

• You need to be clear what is and isn’t outsourcing. Services consumed as a business is not outsourcing. Outsourcing covers activities that would/could be done in house.
• Notwithstanding this point, several organisations are managing their outsourcing and other third party business services through a common framework.
• Selling a part of your business can lead to an outsourcing arrangement coming into effect.
• Emerging trends that will impact on the need for outsourcing and third party arrangements include:
  • We live in uncertain times! This is as relevant to outsourcing as other parts of a risk management framework
  • The concepts of the “typical customer”, “average person” and “usual life journey” are no longer suitable in most situations.
  • Consumer tastes are changing. For example, research shows that most millennials would rather spend money on events and experiences than tangible assets.
  • The XaaS (“X as a Service”) economy is growing – for example, software as a service.
  • Big data analytics, Internet of Things, artificial intelligence, and robotics are all important and developing.
  • Customer centricity and the tension between speed to market and the associated risks.
  • Ways of working are changing, including the “gig economy”.
• It is important to understand what outsourcing arrangements are in place across your organisation, who owns the relationship/contract, the level of materiality, any correlations between parties, etc (i.e. a central source of truth).
• When considering outsourcing, keep in mind the value proposition to your customers. Don’t erode this value for the sake of saving a few dollars.
• There are alternatives to outsourcing, including JVs and staged ownership.
• Don’t transfer poor processes to third parties. It’s difficult enough to manage a poor internal process; managing it at arm’s length is much harder.

The forum concluded at 1:30pm with a light lunch for those who didn’t have to rush back to their offices immediately.

Thanks to Craig Calder from ThinkClear Group who did a great job facilitating the forum. Thanks also to the Organising Committee (Gavin Pearce, Catherine Dube, Blair McAuliffe, Jess Telford and Liz Gemmell) and the Actuaries Institute for their support.

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