Event Wrap-Up: Merging Technology and Risk Management

Reaping a tech dividend: Doing more with less

Risk managers in today’s disruptive and tech-driven era face a fundamental conundrum: Having to do more with lesser resources.

This was the key message that was emphasized at the official launch of Marsh & McLennan Companies’ (MMC) Targeting a Technology Dividend in Risk Management report that was held in Marsh’s office in Singapore on January 25, 2018.

The report- the product of the very first collaboration between the Pan-Asia Risk and Insurance Management Association (PARIMA), a leading professional association for risk and insurance managers and MMC – is based on key findings and results from the Emerging Tech in Risk Management Survey of 2017 of over 130 risk professionals cross-industries. It also comprises of business applications, case studies, and perspectives from across Marsh, Oliver Wyman, and our partners.

Together with AXA Singapore, some of the key findings generated a robust discussion among industry practitioners on the importance of emerging technology, as well as developing solutions for future-proofing the role of the risk professional.

Gordon Song, Head of Group Risk & Internal Audit at Lazada Group and PARIMA Board Member, kicked off the report launch by stressing that change is the only constant for risk managers in today’s volatile and unpredictable global landscape.

 

Three major emerging technology levers

Rohan Bhappu, Managing Director, Asia Sales Leader at Marsh, shared that 67% of all respondents to The Emerging Tech in Risk Management Survey 2017 cited that cost and budgeting concerns are the most significant obstacles that the risk function faces when risk managers seek to upgrade and digitize the risk function.

“Only about 17% of respondents stated that risk management is playing a front and centre role in making or informing business decisions,” said Rohan.

“As regulators push for increased risk oversight for both FS and non-FS companies, now is the time to change this – to push for more investment and support from the rest of the C-suite.”

Fully recognising that risk managers today have to address more serious and complex risks and disruptions while lacking buy-in and investment from upper management, Rohan said risk managers must leverage technology advancement.

“Targeting a technology dividend will allow risk managers to solve for newer uncertainty with the same capacity,” he said.

Technology advancements provide potential solutions for risk managers to improve effectiveness and spark business insights. In particular, the risk profession may reap significant technology dividends by leveraging innovations in three key areas:

1. Data: Building a rich risk database of real-time big data from new sources (e.g. cloud accounting, application programming interfaces (APIs), social media, geolocation software, etc.)

2. Analytics: Generating forward-looking risk-informed insights (e.g. machine learning, predictive forecasting)

3. Processes: Digitizing the risk function to boost efficiencies and reduce costs (e.g. robotic process automation for risk monitoring)
Despite plans for digitization, most Risk functions are still using traditional technologies in risk management. Risk professionals were also surveyed on the technologies they were currently using, and what they were planning to use.

The survey findings deduced that spreadsheets (76%) are the most commonly used tool among all technologies, closely followed by risk assessment (52%) and tracking (38%) tools. Fortunately, risk professionals are hopeful and expect large gains from emerging technologies, such as predictive analytics (26%) and data engineering (22%), as compared to traditional technologies.

 

Piloting an advanced country credit risk monitoring methodology

Amongst multiple real-world applications of technology innovations, a case study on leveraging risk analytics was also presented by Gaurav Kwatra, Principal (Finance & Risk Practice) at Oliver Wyman.

In 2017, a global institution, with the support of Oliver Wyman, enhanced its strategic foresight capabilities by developing a sentiment-based modelling tool that dynamically mapped and tracked country risk from its physical supply chain. First, machine-learning algorithms were developed to process real-world incident and natural language data from multiple sources, including news events, financial databases, third-party vendors, and social media platforms. Next, the model extracted trackable sentiment-scores to calibrate country-level risk limits and other early-warning signals and mechanisms, creating a market-scoring system.

Overall, the global institution benefited from significant upgrades to its strategic foresight capabilities, incident response times, and critical business processes.

In addition, its risk coverage expanded to include even political and reputational risks, which are typically challenging to quantify but are now covered to holistically contribute to its enhanced strategic steering and risk management framework.

Gaurav highlighted that Risk functions that leverage analytics can enhance their capabilities through a variety of avenues including Modelling and Forecasting, Customer Support, Supply Chain Risk Management, Fraud Detection and Cybersecurity.

“The application of analytics to this real-world incident data allowed Oliver Wyman to extract a trackable sentiment score to inform the early warning mechanism” Gaurav said.

“The client gained in foresight and response time to incidents – hence, the client was able to upgrade critical business processes.”

 

Digital horizons of change and quick-wins for risk managers

Digitizing the Risk function may be an extremely challenging task, but the forward-looking insights from the unprecedented of real-time big data and advanced analytics afforded by the emerging technologies are not to be missed.

There are three horizons of change across the complexity scale for risk digitization as Risk functions undergo this transformation: Level 1 — a traditional risk function optimisation, Level 2 — a progressive risk function foundation, and Level 3 — a fully digitized risk function.

While most surveyed respondents suggest that their firms have not fully explored these horizons of change, many have ambitious plans to embark upon the journey. For example, slightly over a-third responded that they were at no level of digitization, and 14% of respondents have no plans to embark on any digitization at all. Encouragingly, 57% of respondents are currently at the first level of digitization, while 48% are planning to reach the second stage of digitization.

The following summarizes briefly the five practical steps for risk managers to kick-start the digitization of their risk functions:

1. Launch ‘quick wins’. Identify longer-term efficiency gains based on the digital risk activity map
2. Scan the competitive landscape. Understand current positioning in comparison to peers
3. Define digital ambitions. Outline strategy, position, and vision for the future of risk management
4. Align regulatory strategy and relationship. Monitor regulatory changes on emerging technologies
5. Establish recruitment strategy. Anticipate long-term human capital requirements

 

A big wake-up call

Steve Tunstall, PARIMA’s General Secretary who moderated an engaging panel session after the presentation, said this serves as a wake-up call for risk managers.

“Repetitive and tedious functions will be replaced by robots. 76% of risk managers still use spreadsheets as their most commonly used tech programme.”,” he said.

“Ladies and gentlemen, let me repeat those 2 sentences again. Repetitive and tedious functions will be replaced by robots and 76% of risk managers are still using spreadsheets.”

“In today’s disruptive technological landscape, this finding is really something all risk managers should take note of or they will risk getting left behind, directly impacting their organizations too.”