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Future of Risk Management; 5 Trends To Watch Out For

Here are just some of the trends that defined risk management in 2018

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Domain specific risk management won't stop IT threats anymore

The world of finance in 2018 has been characterised by one term above all else, and that is risk mitigation. Once relegated to the side-lines, thanks to becoming a sophisticated theoretical exercise without the necessary thrust from the top for implementation, risk management is now back under the spot light due to some disastrous trends which could have been easily controlled with an effective risk framework. The gradual resurgence of the term into the industry lexicon is also due, in large part, to the poor decisions taken by certain companies and sectors exposing breaches in their armour; costing them dearly. Many once-respected organisations have had their finances and reputation badly scarred, often beyond repair due to the leadership not giving risk management its true value. 

Here are just some of the trends that defined risk management in 2018:

Non-Performing Assets

Indian public sector banks are in the global scanner for their non-performing assets and bad debts. It has been estimated that the gross value of NPAs in Indian PSUs is Rs.8, 40,958 crore, which is over $122 billion. 2018 was the year that this on-going scandal attracted significant public outcry, following the sensational PNB Scam. This prompted the government to announce the approval of the Fugitive Economic Offenders Bill and the Reserve Bank of India to unveil a Prompt Corrective Action (PCA) framework to preserve the financial health of certain Public Sector Banks.

Fraudulent Insurance Claims

The insurance industry continues to be plagued with fraudulent claims, with the non-reporting of prior illnesses, and intermediaries risk being the two factors that affect them most significantly. Persistency ratios make for another risk that is impacting the industry severely. According to a report by India forensic, insurance companies lost over Rs.30, 400 crore to fraud, which is equivalent to 8.5% of the industry’s total revenue. 86% of all insurance fraud came from the Life Insurance sector. Our own on ground analytics of underwriting risk assessments and claims investigations reflect the depth to which fraud has pervaded the system;

* Evidence based fraudulent claims range between 13-15%

* Assam, Bihar, Odisha, Gujarat & Haryana continue to be the major pain area for the entire insurance industry

* More than 40% of negative claims are on account of un-disclosed pre-existing illness related to the cause of death

* Dead man policy is a rising trend in the negative cases- these are policies taken post the death of an individual

* Investor policies are becoming a huge racket in the industry specially in Assam, Haryana & Gujarat- this is where investors invest in a life insurance policy of critically ill patients

* More than 9% death certificates verified were fake

Data Leaks

The proliferation of smartphones and adoption of digital transactions have undoubtedly been a boon to start-ups, especially the e-commerce industry. That being said, 2018 witnessed some high-profile data leaks plaguing several major industry players, which have shaken consumer confidence to a substantial degree, especially those that compromised customers’ private information. Cases like hacking and sale of data from 17 million Zomato users in 2017, while uncommon, are a constant reminder of the enormous challenges being faced by the tech industry as a whole.

Compliance Risks

Compliance risks are legal penalties that a company incurs when its actions, activities, or lack thereof, violate the industry laws and regulations, or prescribed best practices. The changing compliance landscape in India is exposing organisations that are not swift to adapt to this risk. While the perception of what merits these changes bring in, in the long term [some argue that such penalties are necessary and often justified in places where companies have taken unnecessary risks, others see it as an unnecessary degree of regulation that harms economic growth and punishes organisations unfairly] the bottom line remains, this is a risk that organisations will need to be very aware of and plan their cash flows and administration processes accordingly. Many experts predict that compliance risks are highly likely to be the next big factor that will affect business continuity and the sustainability matrix.

Information Digitisation

The lack of Information digitisation and sharing continues to be a large source of risk in India. One of the reasons which has ebbed the flow of digitisation is the fear that the data is highly susceptible to hacking, scamming, and fraud. A recent incident where the TRAI chief had his personal information shared on social media platforms after he publically posted his Aadhaar Card number is proof that even supposedly secure platforms are vulnerable to determined and competent assailants. Conversely, this makes the challenge of data validation more severe, retroceding it back to the costly and time consuming physical verification processes , which then get side-lined. This is turn leads to taking decisions based on un-validated data, which is just as likely to attract the interest of fraudsters and scammers, putting companies in a compromising situation either way.

2018 is conclusive proof that strong risk management is a necessity, which spans across companies, industries, sectors, and nations. Many organisations have suffered irreparable damage to their finances and reputation because they saw the risks they faced, but chose to ignore them. While risks are a part of any successful enterprise it is also important to be able to assess the probability and impact of various risks at every level to insulate the organisation. Many organisations who have taken this lightly are not around anymore to see the light of day.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

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Hitesh Asrani

The author is Founder & Director, CRP Risk Management

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