Operational risk management : the situation of Maltese insurers

Abstract

The research set out to present an analysis of the significance given to Operational Risk Management in Maltese insurance firms, particularly in view of the forthcoming Solvency II regulations that require the insurers to have a Risk Management function. After a review of different literature, the research carried out a number of qualitative interviews with top-management representatives of five insurance firms in Malta. Results showed that Maltese companies may not have been completely aware of the importance of tackling operational risks as a macro risk on its own. Secondly, given the small size of the Maltese firms, they may not be able to afford, both operationally and/or financially, to take care specifically of operational risks. Results also show that Maltese firms have Enterprise Risk Management high on their agenda. A Risk Management function is required under the new Solvency II regulations, and some firms feel obliged to comply. Others, however, are more proactive and adopt risk management as part of their strategy to achieve a competitive advantage. Whether for strategic or regulatory pressures, the study shows that insurance companies are oriented towards adopting an Enterprise Risk Management framework. Maltese companies need to consider Solvency II as a positive initiative leading towards a new era of regulation rather than an added expense or a requirement. More proactive involvement is needed by the Board of Directors who have ultimate responsibility of the firm. They need to realize that good Operational Risk Management strategies can serve as early warning signals and may well safeguard the reputation of the insurer, apart from policyholder protection.