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Christoph Flückiger, Chief Risk Officer Group Operations at Zurich Insurance Group

Risk management at the top level of management.

Christoph Flückiger
Christoph Flückiger
Where do you see the greatest risks for Zurich Insurance Group in Switzerland?

Christoph Flückiger: Switzerland is an attractive base for companies with an international focus, both from a business and political perspective. However, geographically speaking, Switzerland is in the heart of Europe and is therefore inevitably influenced by the economical and political movements of the eurozone. This means that risks arising directly or indirectly from tax-policy discussions, the unresolved financial crisis gripping numerous eurozone countries, or increasing regulatory requirements are all factors that can affect our business.

Compared with Switzerland, do you believe Zurich Insurance Group faces similar risks in other markets internationally?

Christoph Flückiger: While the risk profiles in our various business areas are quite similar on a whole, regional and local differences do exist. For example, fraud risk plays a larger role in countries with greater economic uncertainty. Moreover, consumer protection efforts are bringing with them a growing numbers of laws and regulations. Let’s not forget that discussions surrounding the special requirements of ‘systemically relevant’ organizations aren’t over yet.

How have these risks come about?

Christoph Flückiger: Our global structure increases the complexity of our risk profile. This complexity isn’t just the result of our international business focus, it also stems from the growing tendency to transfer service performance activities to third-party organizations. This may boost efficiency but it also introduces new risks. The global value chain becomes more complex and susceptible to disruption. Incidents in one market or involving one individual supplier are increasingly having an impact on other markets and even entire organizations. Social media also amplifies reputational risk. The comprehensive, up-to-date documentation and analysis of risks, as well as agreeing on measures to limit the potential impact of those risks, are both tasks that have become more challenging over the past few years.

How do you monitor risk? What strategies do you employ to mitigate it?

Christoph Flückiger: I believe that the systematic application of the ‘three lines of defense’ concept remains a vital principle for effective risk management. Risk management as an isolated activity performed by a specialist function can’t be effective. Instead, operational management – in other words, the first line of defense – must accept and actively carry out its role in enterprise risk management. In line with this, our motto is “risk management is everybody’s business!” The specialist function serves as a second line of defense to ensure that a clear risk governance process is developed with standardized tools for the ongoing identification, analysis, assessment/quantification and tracking of risks and that this process is understood and applied by the organization as a whole. Finally, as an independent third line of defense, Audit ensures transparency with regard to the effective application of documented guidelines and processes.

What is your perspective on the relationship between risk management and operational management?

Christoph Flückiger: We attribute great importance to this relationship at Zurich. The Group Chief Risk Officer is positioned at the Executive Committee level and reports directly to a Board Risk Committee in the Board of Directors, which regularly reviews the effectiveness of risk management. That said, it’s also important for risk management specialists to be represented and accepted as business partners in the operational management committees at all other levels (segment, region, business unit). Yet for this to be feasible, they are required to possess expertise and experience not only in risk management methodology, but also in the relevant specialist field. Communication skills also play a vital role for them to be able to contribute effectively.

Has the role of the Board of Directors (BoD) changed when it comes to risk management since the onset of the financial crisis?

Christoph Flückiger: I believe so. The current financial and governance crises mean that the BoD is more exposed nowadays than ever before. Investors and the public expect it to issue clear directives concerning governance and to assume responsibility. I believe this has generally led to considerably more demanding role requirements for BoD positions over the last few years, both in terms of members’ professional skills and experience, as well as the level of time commitment such a position entails.

What are the greatest challenges of the risk management function in today’s market?

Christoph Flückiger: Traditionally, risk management has primarily focused on compliance with financial controls and regulatory provisions. Risk governance will continue to remain one of the basic tasks of every risk management function, but nowadays the expectations are higher. There’s a stronger focus on strategic areas of risk with the aim of increasing efficiency and improving performance. One of the tasks of the risk management function is to develop the Enterprise Risk Management Framework (ERMF) in line with the business. Through discussions with operational management, its purpose is to make a solid contribution toward identifying opportunities and to optimize the use of existing risk capital in a fast-changing environment. In fact, the latest studies indicate that effective risk management can have a direct and positive impact on the financial performance of its business.

Meeting the demands I just mentioned will require a new generation of risk managers – and this is certainly an exciting challenge!

Interview by S. Glarner, Marketing & Communications KPMG CH
Copyright KPMG

Mercredi 27 Juin 2012