Risk Culture: What It Is and How It Affects an Insurer's Risk Management

Abstract

This article conceptualizes risk culture and sheds light on the role it plays in insurers’ risk management frameworks. The article follows a cognitive, dynamic approach, arguing that risk culture is the product of organizational learning about what has or has not worked for it in the past. Within their local context, the members of a group learn which of the typically centrally prescribed formal risk management policies and procedures and which espoused risk philosophies actually work in practice in the sense of behavior that is formally or informally encouraged or discouraged, rewarded or punished. While the formal risk management framework defines which processes to use, which limits to obey, and which values to aspire to, it is the risk culture that defines which rules and norms are perceived to be rational and important. The insurance literature commonly argues, and practice suggests, that it is necessary to achieve consistency in order to effectively embed risk management. Nevertheless, inconsistent basic assumptions at the deepest level of risk culture are a likely feature of local subgroups. However, what is rational and efficient to one subgroup might be random and dangerous for the organization as a whole.

Organisational culture and enterprise risk management: The Australian not‐for‐profit context

“…Several studies refer to the specific concept of ‘risk culture’ (e.g. Ring et al., ; Roeschmann, ; Sheedy & Griffin, , ). Risk culture is defined by Sheedy and Griffin (, p. 4) as ‘shared perceptions among employees of the relative priority given to risk management, including perceptions of the risk‐related practices and behaviours that are expected, valued and supported’.…”

“…Both scholars and practitioners have recognised the important role of organisational culture in shaping ERM, as well as risk management in general, predominantly on a normative basis (e.g. Ring, C, McKinney, & Webb, ; Roeschmann, ; Sheedy & Griffin, , ). Kimbrough and Componation () and Cooper, Faseruk, and Khan () conclude that one common element to all key risk management frameworks is the emphasis on the organisation's culture.…”

Firm's demand for insurance: An explorative approach

“…Similar to Roeschmann (2014), a bottom up approach was used to conceptualize the findings from the qualitative text analysis to the propositions, which build the fundament for the proposed framework of firm's insurance demand.…”

Risk culture development and its impact: the case of the Caribbean Development Bank

“…expressed through how people think, feel and behave relative to risk and risk management". This is the central tenet of Roschmann (2014) who suggested that risk culture is a cognitive, dynamic concept with psychological and behavioral aspects interacting with organizational aspects such as systems, processes and structures. Further support for this view is provided by Boissel et al (2015) and the CRO Forum (2015).…”