A risk maturity model for financial services : a comparative study

Abstract

PURPOSE: This study set out to establish a unique risk maturity model and apply this to European and Australian insurance companies and European banking industry, and assess its impact, including its benefits and limitations towards risk management. DESIGN: The unique risk maturity model was based on a questionnaire presented to specific individuals involved in risk management. These specific individuals were responsible for the strategic direction, operations and risk management activities of the organization at various levels within the management hierarchy. FINDINGS: The main findings of this research revealed that risk management is the perfect vehicle to implement and maintain a cohesive approach that enables an organisation to reduce uncertainty on objectives, and remove barriers in achieving its strategic targets. The construction of a Risk Maturity Model in line with the needs of the European and Australian market was perceived as a major task involving a high degree of subjectivity, particularly with respect to the areas and components to be selected and the application of the relative weightings. The application of such model was projected to influence positively the insurance and banking industry risk management practices, especially due to new comprehensive set of reform measures, targeted to strengthen the regulation, supervision and risk management practices of these sectors. CONCLUSION: From the application of the Risk Maturity Model, it can be concluded that conducting risk maturity measurement should be encouraged among all organisations, because of its numerous benefits, especially to banks and insurance agencies that face a volatile market, investment risks and risky credit. VALUE: Due to dramatic changes in the organisational landscape, organisations have had to review and amend risk management frameworks, processes and principles more regularly. Consequently, organisations now require an approach to risk management that enables the achievement of strategy, objectives and business activities. Risk management has to be implemented with the consideration of both the internal and external business environment on an enterprise-wide basis. The Risk Maturity Model proposed in this research aims to support decision makers to drive organisational performance and reduce the total cost of risk.