It is essential to manage risk effectively by identifying it, categorising it correctly, detecting its root cause and aggregating its potential financial and non-financial consequences. By doing this you reduce your
internal cost of risk, gain insurance market confidence and improve your insurance buying position.
What is risk aggregation?
According to the report entitled Principles for effective risk data aggregation and risk reporting by the Basel Committee on Banking Supervision, ‘risk aggregation’ (or as they define it ‘risk data aggregation’)
refers to the process of defining, gathering and processing data related to the risks of a company. The aim of this process is to sum up the risks that are faced by the organisation in order that decisions can be made about how to put strategies in place to mitigate this risk.
Potential challenges associated with risk aggregation
One of the main challenges that could be faced in aggregating risk is that there are no set processes, methods or standards that govern it. In other words, there are no set guidelines for executing it, as
there are, for example the International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP) for accounting practices. This means that risks are aggregated in a very haphazard manner – as a company sees fit. The problem arising from this is that risk data is not adequately structured for aggregation.
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