By aligning ERM with its business strategy, Zurich has been able to use certain tools to create new value to its organization in a variety of areas. Zurich's ERM program has sustained business growth throughout the recession, contributing to more than 40 consecutive quarters of growth. One way it added value through ERM was when Zurich introduced an enhanced operational risk management framework. One business unit reduced operational risk-based capital (RBC) consumption by 21.7 percent when Zurich moved from an asset-based to a risk-based approach for operational risk quantification. Tools such as Total Risk Profiling (TRP, described later in this chapter) and the business unit then identified high risk exposures, performed a deeper assessment and developed mitigation measures, The business unit experienced an additional reduction of 28.9 percent in operational risk capital consumption the following year. Operational risk capital not consumed was then available to fund profitable growth for Zurich
Optimizing the Risk and Reward Balance at Zurich
To consistently achieve the right balance between risk and reward to optimize capital, many corporate leaders around the world have adopted ERM within their organizations. Zurich has a well-established ERM program, which it sees as a critical component to its success. Zurich's comprehensive ERM and risk tolerance framework links risk taking, strategic planning, and operational planning with a comprehensive risk limit system. It enables active risk-taking within a consistent framework across the entire organization. It also allows for the flexibility to either increase or limit risk levels as appropriate for specific applications, geographies, or business units on a case-by-case basis, in accordance with Zurich's risk policy.
Global businesses like Zurich are increasingly focused on the challenge of mapping and managing their risk profiles, looking beyond a single dimension to understand the complex interactions between many different types of risks. Zurich's risk landscape outlines the number of risks, types of risks, and potential effects of those risks to the organization. This outline supports each business unit within Zurich as they strive to anticipate additional costs or disruption to its operations. Also, it describes the willingness of Zurich to take risks and how those risks will affect the operational strategy of the organization. Managing the vast scope of business exposures and growth initiatives requires taking a broader view on risks from a strategic perspective. In defining its desired risk profile, Zurich must determine which risks will optimize its returns. Its ERM mission is to promptly identify, measure, manage, report, and monitor the risks that affect the achievement of its strategic goals.
Risk Culture at Zurich
The risk culture at Zurich could be defined as the individual and group behavior within the organization that determines the way in which Zurich identifies, understands, discusses, and acts on the organization's risks and opportunities. Embedding a positive risk culture is the responsibility of the Zurich leadership team because it is critical to the effective management of the business.
The core characteristics expected from an effective risk culture include committed leadership, an effective governance structure with clear risk responsibilities and timely escalation procedures, continuous and constructive challenges, active learning from past mistakes, and incentives that reward consideration of risk management objectives and risk appetite in the organization's management of the business.
Zurich recognizes the need to constantly improve on its ERM program. Senior leadership also wishes to have an effective way of understanding and reporting on the risk culture and framework of the company, both to support internal management and oversight and to be able to report externally. In principle, the risk culture should not be seen as something separate from the overall culture of the organization, and, for risk to be truly embedded, it should be regarded as one element, albeit one that currently deserves specific attention.