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Embracing risk

By Robb Hare | August 27, 2012
Embracing risk
Jim Gilligan

Enterprise risk management (ERM) is common in every business, allowing organizations to manage risks related to their goals.

“If you do it right, ERM is really nothing more than running your business in a certain way,” says Jim Gilligan, president and chief executive officer of Moncton-based Blue Cross Life Insurance Company of Canada. “There’s a danger in thinking that this thing is a program you have to go through and tick off some boxes; it’s not that at all.”

He speaks from experience.

After the 2008 global financial crisis, Gilligan and his leadership team went to the company’s board of directors to discuss the creation of a process to address risk management.

“The board plays a very strong role,” he explains. “Meeting with them gives us the opportunity to bring risk issues to the table and get a different perspective on them.”

Following the ERM meeting with the board, the audit committee was given the responsibility of the risk management function and now reports its findings back to the board.

“We also created an internal risk committee,” explains Gilligan. “That’s really where we’ve been doing a lot of the groundwork to establish the framework we need for ERM.”

Regulation has also helped make his task easier. While the regulatory environment seems to have become far more complex of late, one of its principal goals remains fairly simple: ensure financial institutions maintain the capital required to meet their stakeholder obligations.

The Office of the Superintendent of Financial Institutions (OSFI) identifies several risks insurance companies must analyze, comprehend, reduce, and discuss with their boards. This guidance, together with international standards, such as the Basel Accords, Solvency II, and the soon to be released Own Risk and Solvency Assessment (ORSA) are establishing best practices for managing risks within the sector.

International Financial Reporting Standards (IFRS), introduced in Canada in 2010, also provides Blue Cross with greater clarity around risks associated with the outsourced parts of its business such as underwriting, claims and certain administrative activities. The costs of these “counterparty risks” and related reinsurance contracts were always reported, however with IFRS they are now much more readily apparent on the balance sheet.

“When we first presented our financial statements under IFRS, the board was surprised to see how much reinsurance we had with these other parties,” Gilligan says. “It gave us greater clarity on our risk picture. And I think that’s what it was meant to do.”

He believes that ERM is not a negative, but a positive for business. While it might hold an organization back, it may also open up new possibilities.

“This is something that allows you, potentially, to take more risks than what you’ve taken before simply because you know them better,” Gilligan explains. “The key is that you have a better sense of the unknown.”

The unknown is always a worry for the financial services sector, especially in the aftermath of the global financial crisis. Stress testing is one way Blue Cross keeps itself prepared. While not prescriptive, the ORSA methodology and OSFI will emphasise the value of stress testing, encouraging organizations to focus on scenario analysis tools as they develop their own risk management framework.

“It’s all about putting it through the wringer to see what’s going on,” he says. From there, the results are reported to the board to help it understand the possible worst-case scenarios.

Gilligan has a positive view on risk management and believes the regulatory rules that need to be followed have helped his organization become better. He cautions that if businesses see it as an administrative requirement, then it will be seen as tedious and another item on the list of chores that needs to be completed.

“But if you see it as a way to give life to your business, I think it helps you,” Gilligan says. “It’s like a roadmap.”

About Blue Cross Life Insurance:

Headquartered in Moncton, N.B., Blue Cross Life Insurance Company of Canada was founded by the Atlantic Blue Cross organization in 1969 as the Atlantic Mutual Life Insurance Company. Today it is owned by Canada’s regional Blue Cross health plan organizations — not-for-profit entities established by provincial legislation in Canada’s pre-Medicare years. Blue Cross Life Insurance Company of Canada is regulated by OSFI and is licensed to sell insurance products across the country.

The insurer uses the regional Blue Cross health plan organizations as the distribution arm for its products — and outsources its underwriting, claims management, and administration operations to them as well. The approach enables Blue Cross to level the competitive playing field with other, larger insurers, while providing Blue Cross customers with one-stop-shopping for all their health-related insurance needs.

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July 29, 2013

Robert Lamoureux

It's good to hear Jim's experience in enterprise risk management, an old colleague at C+L. I've been chair of the Audit, Risk and Investment committee of a Canadian life insurer for four years and have just become the chair of the Risk and Investment committee, now that we are focussing and working more on risk management. I am trying to focus the committee on risk in relation to accomplishing business objectives, as promoted by PwC's Risk Management practice. I'm looking forward to the challenges and related benefits ahead.
Bob Lamoureux

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