Chief risk officers (CROs) have carved out an important role in insurers, but they need a different skillset to succeed in senior C-suite roles. Paul Walsh reports
Given the task of navigating the constantly changing threats to insurers, the CRO has developed into a role combining quantitative analysis and "softer" skills of leadership and influencing.
To some extent, their role has taken the form of an internal non-executive director and advisor. In practice, this means always being on hand to advise on a course of action, with the final decision largely being the responsibility of another member of the C-suite.
However, more and more CROs are moving to positions with markedly different responsibilities, including chief executive officers (CEOs) and chief financial officers (CFOs).
Over the last three years, this has included high-profile CROs including Aegon's Allegra van Hövell-Patrizi (now CEO of Aegon the Netherlands) and Zurich's Alison Martin (now CEO for EMEA and bank distribution). Tom Wilson, Justin Skinner and Frieder Knüpling also made similar moves at Allianz, Vitality and Scor respectively.
InsuranceERM spoke with the latter three who have made this transition, to explain which skillsets they brought with them and which they needed to learn.
Accountability and decision making
Tom Wilson, CEO, president and country manager at Allianz Ayudhya, the Thai subsidiary of Allianz, who previously spent over 12 years as the German group's CRO, indicates one major difference between risk management and senior business roles.
"As a first line of defence with executive accountability, the buck stops with you as a senior business leader," says Wilson.
Senior business leaders have to experience taking the "multiplicity of sometimes mundane decisions"
"In contrast, a senior risk leader acts to an equal extent as an advisor to the board of management with regards to strategy, ERM frameworks, limits, etc."
He explains senior business leaders have to experience taking the "multiplicity of sometimes mundane decisions" that both affect strategy and operations compared to focusing on "advising and influencing" as CRO.
"Both roles can have substantial impact on the direction and performance of the organisation, but they require a different type of influencing and a different type of decision making," says Wilson.
Timescales
Justin Skinner, group CFO and former group CRO at UK life and health insurer Vitality, explains the consulting aspect of the CRO "just stops" when taking another senior role. Instead, there is more pressure for immediate decision-making and a fundamental difference in the timescales at which CFO and CRO operate.
"As an example, CROs spend a lot of time on emerging risks," says Skinner.
"[As CRO] you need to understand what the landscape is going to be, what the risk is going to be in the business in five to 10 years' time.
"As CFO I'm not worried about 10 years' time. I'm thinking about this year and potentially a little bit on next year as, in terms of narrative around performance in the market, it's shorter term."
Inquisition
Despite the change from advisor to decision-maker, those who have made the transition conclude some skillsets are transferable. In particular, the inquisition skills learned by CROs remain relevant in more senior roles.
Vitality's Skinner explains how the CRO's focus on "peeling layers from the onion" to reveal the business risk can be applied in both roles.
"That inquisitive nature still forms a large part of the method of the new role"
"As CFO, I'm much more focused now on the financials. As CRO, I was worried about a broader set of risks.
"While there is more focused decision-making on specific smaller pools of risk, the methodology behind it is very similar. That inquisitive nature still forms a large part of the method of the new role."
Allianz's Wilson says the inquisitiveness and even "mild cynicism" of a CRO's skillset and can be beneficial in his new position.
"I cannot play a good governance role without having a good understanding of where I think things might go wrong.
"Asking questions such as 'what are the scenarios that might cause a problem' and 'did you test the design, did you test the implementation', etc [are key]. Asking challenging questions is absolutely necessary for a CEO to sleep well at night."
He adds having a stronger financial and capital management perspective, gained as CRO, provides him with a "deeper lens" to view quantitative financial data and understand the situation as well as what conclusions can be drawn from it.
Frieder Knüpling, CEO of French reinsurer Scor's global life business and its former group CRO, notes previous experience in a risk role provides greater understanding of wider company frameworks and guardrails.
"I know that inevitably all these frameworks are not perfect and you need to think carefully about risks which are unusual and may slip through the net."
Makeup of teams
Getting used to working with a more expansive, and at times unfamiliar team, has proven to be a significant learning curve for CROs.
Allianz's Wilson explains risk functions comprise "deep technical expertise" but the scope needed for managing a team in a senior business leadership role is even greater and includes those responsible for strategy, operations, distribution and finance.
As Scor's Knüpling says, such an increased team brings its own challenges.
"Working with a team where I don't know every single person is different"
"In the past I would have known every single person in the risk team," says Knüpling.
"You could get to know everybody and keep track of every single person, moving and changing roles etc.
"Working with a team where I don't know every single person is different. [As CEO] I constantly meet team members in all kinds of contexts who I don't know. They play an important role in the broader team but I haven't met them before."
He explains bringing together such a diverse team can, at times, make communication skills more important than technical abilities.
The right experience
An increase in the number of CROs moving to senior management may be a reflection of the growing importance of the risk function within insurers.
CROs have been constantly urged to broaden their remits and, according to those who've made the senior management transition, this requirement to continually evolve makes them ideal candidates for C-suite roles.
Scor's Knüpling says the risk function has matured in the last 20 years, while the introduction of Solvency II in the EU has increased the need for technical accuracy, which boards are looking to harness.
"We've now reached the point where the risk function has bedded down quite well [within the sector], particularly in Europe," says Knüpling.
Vitality's Skinner attributes this improved status to the fact CROs must take a wide view of the business.
"I've seen our investments business, health business and life business. I understand the dynamics of each of the segments. I know all the people in them. I know what the key challenges are.
"The senior boards of insurers are in essence thinking, 'we need somebody who has a mould of a broader set of experience' rather than somebody who has a more specific concentrated view. And that's why they come to the CROs as they have a natural affinity with a wider reach and wider remit," says Skinner.
Allianz's Wilson says his background as a CRO has given him an "inherently broader" perspective.
"[As CRO] I saw regulatory developments and trends in North America, Europe and Asia for data privacy, sales practices as well as ALM, underwriting and operational risk events and successful product and business strategies across many different companies and markets," he says.
He also notes how duties performed as CRO provide "a lot more exposure and experience to draw upon in terms of what can go wrong and what can go right".
Bumps in the road
However, the pathway for CROs to move to another senior role might not be smooth in the future. Regulatory demands, among other factors, are changing the archetypal role of the CRO.
Wilson explains the continuation of the trend could be threatened if the CRO role becomes less business focused and more compliance orientated.
"My fear is that the increasing regulatory burden is leading to more and more focus on 'frameworks' and box ticking," says Wilson.
"If so, the potential [for a CRO] to jump into a leadership role with a broader business perspective might be reversed. Whether CROs take other senior business leadership positions may depend on which track the industry, and more specifically his or her company, takes.
"If a future CRO is more compliance focused, it might make it more difficult for them to transition to a senior business leader role."