Zurich Insurance: Global Job Structure and Data Analysis – Case Solution

4. Based on Chapter 14, how do Zurich’s ERM Tools help them better understand their existing and emerging risks?

Zurich Insurance Group operates in more than 170 countries, and with its wide range of customers, it is exposed to more risks, but Zurich believes that risks should be taken at the right time in order to improve and protect the shareholder’s value and for the profitable growth of the company.

Zurich thus uses the ERM program to achieve a balance between the growth opportunities and the reality of its worldwide operations. The ERM at Zurich is not only used at its business level but also aligned with its strategic budgeting process and operational planning.

Zurich evaluates the potential risks and develops relevant actions to mitigate the identified risk exposure. With the ERM tool in place, Zurich can achieve the following objectives as listed,

1. ERM monitors that the risks taken by Zurich fall within its risk tolerance level
2. It provides timely and relevant risk information, which enables Zurich in its efficient decision-making process.
3. It helps in developing action plans and risk responsibilities to protect it against any negative outcome.
4. It identifies scenarios that require further risk information so that it can create a sound risk awareness culture, which helps to protect the reputation of the company.
5. With the help of ERM, Zurich Insurance has been able to create new values for its organization in several business sectors. For instance, through ERM, Zurich introduced an enhanced operational risk management framework to add value to its operations.
6. ERM program at Zurich contributed to sustained business growth throughout the recession, which accounted for more than 40 consecutive quarters of growth.

The ERM tool plays a vital role in identifying and evaluating its strategic risk and reputational risk with the changing scenario. The ERM process is reviewed periodically on an annual basis and is aligned with the strategic planning process.

The procedures followed to review the customer risks through the ERM program at Zurich contributes to its core business activities. Zurich performs credit checks to monitor the collateral and financial viability of many of its customers and suppliers.

5. How are Zurich’s risk roles and responsibilities impacting the risk culture as described in Chapter 14?

The Zurich Insurance leadership team is responsible for a positive risk culture since it is considered to be the most important aspect of effective business management of the company.

In order to achieve this effective management goal, the following roles and responsibilities need to be followed:

1. The risk owners at different levels in the organization should be clearly defined so that it enables them to manage their assigned risks, and also, the risk information will be shared with other internal and external stakeholders in the organization.
2. Committed and effective leadership
3. Timely escalation of procedures and efficient governance structure with clear risk responsibilities
4. Active learning from past mistakes and relevant risk mitigation procedures for the same
5. Risk appetite in the organization’s management of the business
6. Improve the ERM program constantly, and the risk culture should not be treated separately from the overall business culture of the organization. It should be regarded as one element with respect to treating the risk exposures.

6. Relate the culture in general, as described in the case, to the ERM program described in Chapter 14. How do we integrate the cultural issues into the ERM design?

• The case discusses cultural changes brought about in Zurich with respect to the roles and responsibilities of its employees at various levels.
• Zurich employed 55,000 people worldwide, who created value through its brand promise of “intelligent protection.”
• The company was bringing about a cultural shift in a way that brought the employees out of their comfort zone and faced challenges.
• As the changes are being brought about, the ERM at Zurich Insurance should evolve parallelly to address any risks pertaining to these strategic changes.
• A resource could be allocated specifically to monitor these changes and report to the ERM team and Senior management about the potential risks involved.

7. Describe two ways the ERM tool has been used to add value, as described on pages 274-277.

The ERM program at Zurich added value by introducing it to an enhanced operational risk management framework. Zurich uses two opportunity analysis tools with respect to the area of mergers and acquisitions to support the due diligence practices, which include the TRP (Total Risk Profiling) tool and the Zurich Risk Room in order to simulate the risk scenarios and to investigate the potential outcomes.

These two tools helped Zurich Insurance to identify the risks associated with strategy and to manage them accordingly. The KPI (Key Performance Indicator is used to analyze and understand the performance level of an organization with respect to its strategic objectives, whereas the KRI (Key Risk Indicator) is used to examine the risks associated with the business performance.

The ERM tool at Zurich uses the KRIs to add value by way of helping determine or evaluate the potential risk exposure that may arise in the future. In other words, it acts as an early warning of the risks that are on the rise. Zurich can also create value for its business by addressing the disruptions to its operations through:

a. Supply chain risk assessment software

b. Business continuity gap analysis techniques

c. Combination of modeling software

It has appointed a supply chain risk officer who is responsible for reporting the appropriate findings to balance between cost and reliability. It has a business continuity team in place, which is responsible for enabling the company to thrive and operate efficiently upon disruption.

Additionally, it also conducts stress testing activities to help Zurich Insurance remain operational, especially when the customers suffer.

The following explains how the TRP tool is used to evaluate various risk exposures, thus enabling it to add value to the organization.

a. The TRP tool was used to evaluate the risk scenarios that prevent on-time delivery and with the expected results.

b. TRP tool was also used to quantify the risk exposure and the tolerance level. It was updated on a regular basis with changing risks or arising of new risks.

c. TRP assessment is used as a yes/no decision gate to examine whether expected results/benefits from the projects are more than the risk taken.

d. TRP method is used at top-level management to develop strategic scenarios that help to maintain a consistent risk exposure and profit level.

e. TRP process helps in mitigating the risks that fall outside of the tolerance level and also to eliminate the barriers to achieving its business goals.

f. The TRP methodology helps in creating corporate risk tolerance, which enables business and profitability controls across the entire organization.

Customers are considered to be the most important factor in any insurance group. ERM helps Zurich Insurance in the procedure of reviewing and identifying potential customer risk.

Zurich evaluates its customer risk by conducting credit checks to monitor the financial viability and collateral of its customers. Through its cross-divisional emerging risk group, it manages and mitigates any new risk exposure across the enterprise.

Zurich adopts 1,000 risk engineers to evaluate and manage customer risk, provide the necessary support for their needs, and protect its own portfolio.

In conclusion, the above explains in detail the ways in which the ERM tool is used to add value to the Zurich insurance group.