The Institute of Risk Management’s (IRM) Internal Model Industry Forum (IMIF) has published its ninth guidance document for the insurance market – Aligning operational risk and insurance.

Operational loss events can have significant impact on the market value of insurers. The operational risk management framework of an insurer, which will include risk appetite setting and risk modelling, should provide direct input to decision making in respect of how much risk to transfer and what insurance coverage is required. Firms should also be able to take proper credit for robust insurance coverage when modelling exposure for regulatory purposes, providing a capital benefit.

To address these risks, the IRM’s guidance was developed to help insurers better align their insurance purchase programmes with the exposure to operational risks that the firm has identified as part of its model processes.

The guidance was produced by a workstream of industry practitioners led by Philip Whittingham FIRM, Head of Model Validation and Risk Governance at XL Catlin, who is also the chair of the IMIF, and Thomas Jaeggi, Head of Operational Risk Advisory, Marsh’s Risk Consulting Practice. The work was also supported by ORIC International.

Phil Whittingham explained, "Our survey work demonstrated a variation in practice across the industry in aligning the management and modelling of operational risk with insurance purchasing programmes. We hope that the new guidance will help inform risk teams about best practice in this area and encourage robust, transparent and integrated approaches that will be of significant value to the business.”

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