Bridging the Academic and Industry Gap

A reflection of one actuary’s journey so far…

In 2020, I took an opportunity to join a formal research journey even though, for the last 30 years, I have been doing non-academic research.

While I await submitting my thesis —marking the end of this journey — I began thinking about the importance of bridging the gaps between the learnings of the academic and the practitioners’ worlds.

I have spent 30 years in the insurance industry working in actuarial and risk management. My career led me to roles in risk management, allowing me to look at insurance, financial and enterprise-level risks from an actuarial standpoint but with a risk manager lens.

Yet, having spent the last three years as a formal part-time researcher with a continuing practitioner role, I am fascinated to find the pearls on both sides of the shore that academics and practitioners are unaware of.

Both sides of the professions remain disjointed, unaware of developments on each side. To solve the many problems facing industries, academics and industry professionals must join hands.

How do we close the knowledge gap?

In a fast-changing world, time is of the essence. Research is one of the key priorities of academics, who need to keep up with trends whereas practitioners, who are short on time, can find it difficult staying up to speed with new developments.  Given this mismatch between the demand and supply of time, academics can provide a perfect solution to address practitioners’ problems.

Many regulators worldwide struggle to communicate the benefits of risk management across the financial industry, and considerable time and effort is spent on various regulations, compliance, failures, and even fines for non-compliance.

For example, Australian Prudential Regulatory Authority (APRA) wrote to all general insurance companies in October 2022[1] about the weaknesses they identified in risk management practices through self-assessment processes conducted in July 2021. They outlined in their letter that the non-participating insurers should consider conducting their self-assessments and adapting the learnings to their operations.

The Prudential Regulation Authority (“PRA”) fined Credit Suisse International (“CSI”) and Credit Suisse Securities (Europe) Ltd (“CSSEL”, together with CSI, the “Firms”) £87 million for significant failures in risk management and governance between 1 January 2020 and 31 March 2021, in connection with the Firms’ exposures to Archegos Capital Management (“Archegos”)[2]. This is the PRA’s highest fine and the only time a PRA enforcement investigation has established breaches of four PRA Fundamental Rules.

In the last twenty years, the academic world has repeatedly proven the benefits of enterprise risk management on firm performance. It has been statistically proven that enterprise risk management (ERM) positively impacts returns on equity and assets, solvency, efficiency, combined ratio, and more.

For example, from 2007 to 2015, Bohnert et al. (2019)[3] analysed ERM’s impact on European insurance companies’ shareholder value by capturing the development towards Solvency-II. They studied 41 insurance companies during this period and used Tobin Q to measure the market-based firm value on the implementation of ERM. They found that the implementation of ERM improved the firm value by 6.5%. Another author, Eckles et al. (2015)[4], who studied companies that adopted ERM between 1995 and 2008, found that ERM helped reduce risk by 14%.

Quantifying firm value in dollar terms on the ERM’s benefits brings shareholders into play. The dollar value necessitates shareholders’ involvement in implementing ERM rather than just a push from the regulator for compliance. This shifts from compliance-based risk management to proactive risk management.

Since the development of ERM over 20 years ago, I have yet to observe such quantification of its benefits in the practitioner’s world. However, regulators have only to utilise such research already published in reputed journals (as mentioned above) to communicate the benefits of ERM to shareholders, making them more interested.  

Academic research is often under-utilised, published in journals that practitioners are unaware of or disregard due to being seen as academic, rather than practical; their research, though on industry problems, remains between the covers of those journals.

With the fast-changing world of new and emerging risks, academics can work alongside consultants to solve problems. Many researchers have assessed the impact of implementing the Solvency-II regime in European countries, which can be useful for countries considering risk-based capital regimes and identifying deficiencies. If the research were shared efficiently, more researchers would be aware of the industry’s practical issues, bridging the gap between academic and commercial.

One of the challenges faced across different continents is ERM embedding within industries and organisations. This question is addressed qualitatively in the industry by assessing ERM maturity. Some rating agencies, like S&P Global, have developed ERM rating tools. In contrast, risk management researchers have also developed an ERM index or ERM scale based on a risk management framework to assess the current level of ERM embedding within the organisation or the industry.

Pangestuti et al. (2023)[5] developed the measurement of ERM through an index called the Modified Risk Management Index (MERMi) based on the 2017 COSO version in South Asian Mining Companies between 2016 and 2021. This Index was derived from the company’s annual report disclosed for ERM implementation. The Index used three values: 0, 1, and 2. A score of 0 was given if companies did not disclose the dimensions and indicators of the COSO (2017) principles.  

A score of 1 was given if a company disclosed dimensions and indicators in a general or qualitative manner, and if the company disclosed quantitatively, a score of 2 was given. The indicators of ERM were searched in the annual report using relevant words, and the author used 20 disclosure items from the ERM framework issued by COSO-2017 to measure the disclosure’s risk management and content analysis.

Such a scale identifies strengths and weaknesses. It helps benchmark individual players against the industry level and can be a useful indicator for the stock market, and even regulators can use such an index to monitor ERM development.

A perfect integration?

There is a perfect area of integration concerning sharing information and data between the academic and practitioner worlds. The academic world looks for relevant and accurate data that is not publicly available, while the industry partner can help with a focused research scope to address specific issues.

One challenge many regulators face is assessing and developing risk culture. Key initiatives have been taken by some global regulators, such as the ECB, De Nederland Che Bank (DNB), APRA, Canada’s Office of the Superintendent of Financial Institutions (OSFI), and the Federal Reserve Bank of New York in the development of risk culture. However, when this author analysed 187 research papers on ERM in the insurance sector published globally prior to 2021, only a handful of research papers were published on risk culture.

Most of the work in ERM in insurance is done on empirical and conceptual research.  Such underexplored research could qualify for the next integration between the two worlds, as it is possible to quantify the level of embedding of risk culture within an organisation by taking primary data.

Another under-researched area is the role and effectiveness of the Chief Risk Officer (CRO). Not many papers have been published in this area; however, Bailey (2022)[6] published that CRO expertise in ERM quality impacts firm value in the insurance industry. The author provided evidence that CRO supervisory and industry expertise, an MBA degree, and internal promotion are significantly related to ERM quality. The firm value, risk and actuarial expertise are positively associated with return on assets, whereas financial expertise, supervisory expertise, and an MBA degree are positively associated with Tobin Q.

The above two under-researched areas in the academic world are significant to the industry. As discussed, developing a risk culture and the role of the CRO determines the course of the firm and the industry. The industry can take on specific projects, invite academic researchers, and fund such projects to perform in under-researched areas.

Many authors have established the impact of the Board, Audit Committee, and Risk Management Committee on firm performance. In a similar vein, more research is required on the role of the CRO in enhancing ERM performance in any industry.

Another unsolved industry problem is assessing the value addition by the risk team to the business and their remuneration linkage. By developing the proxies for risk team performance, the role of the risk team can be assessed in quantitative terms; academic research has not reached this level of depth. 

The need to come together

The current academic and practitioner worlds are disjointed, and both sides of the professions are competing in their respective areas, with no bridge between these two sides of the river. As the above example of the quantification of the impact of ERM on firm performance, research has addressed some crucial industry problems but has not been used to create to fix the issue. There are many such areas where information can be garnered on both sides. The opportunities for integration are immense. 


  3. Bohnert, A., Gatzert, N., Hoyt, R.E. and Lechner, P., 2019. The drivers and value of enterprise risk management: evidence from ERM ratings. The European Journal of Finance, 25(3), pp.234-255.
  4. Eckles, D.L., Hoyt, R.E. and Miller, S.M., 2015. The impact of enterprise risk management on the marginal cost of reducing risk. Joseph’s University, Haub School of Business Working Paper Series, (11-15).
  5. Pangestuti, Dewi Cahyani, Ali Muktiyanto, and Ira Geraldina. “Modified of ERM Index for Southeast Asia.” Cogent Business & Management 10, no. 2 (2023): 2199906.
  6. Bailey, Cristina. “The relationship between chief risk officer expertise, ERM quality, and firm performance.” Journal of Accounting, Auditing & Finance 37, no. 1 (2022): 205-228.

CPD: Actuaries Institute Members can claim two CPD points for every hour of reading articles on Actuaries Digital.