Operational risk within an insurance market
| Date | 01 December 2005 |
| Pages | 293-300 |
| DOI | https://doi.org/10.1108/13581980510635528 |
| Published date | 01 December 2005 |
| Author | Stephen Manning,Andrew Gurney |
| Subject Matter | Accounting & finance |
Operational risk within an insurance
market
Stephen Manning
a
and Andrew Gurney
b
a
Head of Risk Management, Lloyd’s;
b
Manager, Risk Analysis, Lloyd’s.
ABSTRACT
KEYWORDS: Risk analysis, risk manage-
ment
Parts of this paper are based on a presentation
on the same subject given by Stephen Manning
to the Basel II & Banking Regulation confer-
ence organised by the Global Association of
Risk Professionals in April 2005. The paper
reflects the experiences of the authors in devel-
oping and implementing risk management
within the Lloyd’s insurance market.
The views and opinions expressed in this
paper are those of the authors and do not neces-
sarily reflect the views or opinions of Lloyd’s.
How to identify and manage operational
risk are wide ranging topics challenging
many different types of organisation. This
paper looks at the approach of the Lloyd’s
insurance market to this subject and covers
the following areas:
— The types of operational risks faced by
Lloyd’s and its Franchisee companies.
— The approach that Lloyd’s has taken in
its management of operational risk as
part of its overall Enterprise Risk
Management (‘ERM’) strategy.
— Some thoughts on how to measure
operational risk.
— Some of the methods and techniques
employed by Lloyd’s to help manage
operational risks.
INTRODUCTION
Operational risk is among the most elusive
of risk concepts. Management gurus often
state ‘if you can’t measure it you can’t
manage it’ yet operational risk often
appears to defy meaningful measurement.
Experts extol the virtues of articulating risk
appetite, yet operational risk is often diffi-
cult even to isolate let alone determine
how much of it you are prepared to
accept. Texts talk of categorising risk, yet
operational risk is often inseparable from
other risks. Indeed, operational risk is often
at its most damaging when in combination
with other risks.
Our work at Lloyd’s however has led us
to conclude that the common sense
response for our business at this time is to
focus in the first instance on the identifica-
tion and management of operational risk
rather than on its measurement. We believe
that it is possible to set a tolerance thresh-
old for operational risk and that opera-
tional risk losses can usefully be separated
from those in other risk classes
This paper will not resolve all of the
issues surrounding operational risk. It does,
however, offer some observations drawn
from the experience of the authors in
developing a framework for identifying
and addressing operational risk within the
unique environment of Lloyd’s of
London, the 300 year old insurance market.
This may help others to benchmark their
own practices, and gain a greater under-
Page 293
Journal of Financial Regulation and Compliance Volume 13 Number 4
Journal of Financial Regulation
and Compliance, Vol. 13, No. 4,
2005, pp. 293–300
#Emerald Group Publishing
Limited, 1358–1988
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