The benefits of implementing enterprise risk management: evidence from the non-life insurance industry

This paper addresses two critical questions on the performance of Enterprise Risk Management (ERM) i.e., whether its implementation adds value to the firm and whether it takes stages to mature. It confirms both arguments that ERM creates value when the infrastructure is fully embedded into a company’s operations and matured. The traditional methods of measuring value creation in non-life insurance; the combined and operation ratios failed to capture the benefits of ERM in a consistent way. The more scientific measure, return on capital and surplus which take a portfolio view on performance better captured the benefits of ERM than the traditional method. The results confirm the need to treat the implementation of risk management in a holistic manner if true benefits are to be realised. Therefore, the quality of value creation depends on the level of integration of risk into operations, underwriting, investment, human resources, reporting, compliance and IT functions. Insurance companies will be better off implementing ERM than adopting a silo type risk management initiative.