Why do Insurance Companies Need TPRM Frameworks?
By Dragana Knežević, Sales Development Representative
Insurance companies, like other financial services firms, need to comply with strict standards and regulations. They are required to ensure that their third parties also comply with regulations and their activities are regularly reviewed by authorities. Apart from satisfying reporting and auditing requirements, insurance companies need to monitor their data security, privacy, and other threats posed by third parties.
Market practices continue to evolve. Therefore, insurance firms must work to ensure their risk management processes remain effective. In addition to meeting the regulatory agenda, effective risk management protects the interests of both customers and stakeholders.
One of the trends helping insurance companies be more efficient is outsourcing certain activities. However, outsourcing introduces additional third party risks. Due to poor supervision and compliance failures of outsourcing, there has been an increase in regulatory actions.
Challenges and trends in the insurance industry
A joint study by McKinsey and ORIC international outlined the challenges and trends in the industry. The first challenge is a lack of common standards and TPRM frameworks where insurance companies often take a case-by-case approach. This causes difficulties in complying with regulations and decreases efficiency. Secondly, TPRM coverage differs within the industry depending on the size of a company- some insurance companies monitor only a few third parties, compared to others that monitor several thousand. Addressing this large scope is extremely difficult to do without automation, and the insurance industry lags behind other financial services companies in this regard. One of the common trends in the industry is a strong focus on third-party selection and onboarding, neglecting continuous monitoring of said parties. This could arguably be one of the main reasons for the aforementioned compliance failures. Lastly, outsourcing can expose insurance companies to financial and reputational risk. These factors should incentivise companies to have an efficient TPRM framework.
Recommendations
To implement an efficient TPRM framework, organizations must clearly define ownership, establish governance, and articulate risks to align internal stakeholders. This process should extend to all third parties, applying risk-based segmentation to maintain the necessary level of control. A proactive, comprehensive approach is key, with continuous monitoring and escalation processes ensuring risks are promptly addressed. Investing in IT tools further enhances efficiency and consistency, creating a streamlined and effective risk management process.
What risk intelligence tools can do for you?
With the right tools, you can automate TPRM processes, eliminate manual work and drive efficiency. Risk intelligence tools help throughout the TPRM lifecycle to identify the right third parties, onboard them appropriately and provide continuous monitoring. These automated tools help identify and classify risk events, such as financial and reputational risk while providing you with near real time information.
About Owlin
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