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QuestionHow can enterprise risk management lead to sustainable profit and growth?
AnswerRisk management is described as an essential function of insurance companies, but in order to deliver better value to customers organisations have recognised the importance of adopting more innovative approaches. In this way, the emergence of enterprise risk management (ERM) has been identified as a flexible system used for managing various complex risks in enterprises irrespective of certain sources and nature (Fraser and Simkins, 2016). In applying ERM to the insurance field, organisations are focused on ensuring a structured method to assess the risk-return ratio in decision-making processes. It has been argued that ERM can lead to sustainable profit and growth of insurance companies, considering the extensive value creation under the respective model to handling organisational risks. The precise way through which ERM creates sustainable value and profit to organisations is to enable senior management to quantify and maintain the risk-return tradeoff pertaining to the entire company (Oliva, 2016). From this perspective, introducing value based management appears a viable option, considering the emphasis on prioritising decisions within organisations. The exploration of how risk is defined is important in drawing further conclusions related to the sustainable profit and growth resulting from ERM implementation. In financial terms, any capital market incident that can directly impact the cost of capital of the company is recognised as risk. In this way, the outcomes provided under the ERM framework should be properly incorporated into insurance companies’ business strategies (Fraser and Simkins, 2016). Creating extensive shareholder value has become the ultimate concern for managers implementing the ERM model. Such a framework contributes to the controlled and balanced manner in which insurance companies handle different risks. The economic value added under the respective framework serves as a significant indicator of the benefits of ERM from both financial and sustainable perspectives (Oliva, 2016).
ReferencesFraser, J. R. Simkins, B. J. (2016). The challenges of and solutions for implementing enterprise risk management. Business Horizons. 59(6) 689-698. Oliva, F. L. (2016). A maturity model for enterprise risk management. International Journal of Production Economics. 173(1) 66-79.
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