In recent years, many insurers have sought to initiate an Enterprise Risk Management (ERM) program or strengthen their existing programs. In one form or another, ERM programs include a risk identification process.
Companies often perform some sort of risk identification exercise early in the development of their program, and conduct periodic “refresher” exercises on an ongoing basis. In the past, this exercise has sometimes been more informal, with companies focusing on risks that are “top of mind” for the senior management team. However, the risk in this approach is that the results may be colored by the recency effect and other biases, which limit the universe of risks that a company might consider. To address this risk, companies are seeking broader approaches to risk identification.
Though every company does this somewhat differently, one tool that seems effective in helping companies to develop a broader view of their risks is a risk map. Rather than being a static reference tool, risk maps can be used as a fundamental and dynamic part of the risk identification process.