i3 Consulting
Risk Management
Risk Management

The increased integration of financial markets across the world has brought risk management to the forefront as one of the most critical components of any business in current times. Managing risk is all about managing uncertainty in the outcomes. It is no longer seen as a compliance imperative but as a significant value driver which helps institutions in making prudent decisions in their quest to achieve higher revenues and profits.

Risk strategy, Enterprise risk management and governance

Risk strategy focuses on identifying the set of risks that an entity can/needs to assume in the given competitive environment and quantifying the amount of such risks to define the risk appetite. Boards of directors and officers must validate that there is comprehensive identification of risk and develop approaches that integrate risk management and governance processes. i3C can help CEOs, CROs, CFOs and boards design and improve risk strategies and risk management capabilities aimed at streamlining their governance and compliance programs, strengthen the quality of information for decision-making and improve the effectiveness of risk oversight. We can also help organizations design and implement practical enterprise risk management and governance structures that facilitate the deployment of the defined enterprise risk management frameworks.

Risk policy and process design

Streamlined risk processes such as credit process, credit risk mitigation process, market risk management process, collection processes can help drive business growth while keeping the risk at acceptable levels. i3C helps its clients in designing these risk processes from scratch or suggesting the required changes in existing processes to ensure there is optimum balance between efficiency of process execution and right control and mitigation. We help clients review, develop, implement and manage end to end risk process be it for the credit life cycle or the investment life cycle or any other risk process or activity cluster.

Corporate risk management

What risks company should assume i.e. which risks make sense for the company to assume, which risks should not be assumed and more importantly, how to manage the assumed risks." to "which risks company should assume ie which risks make sense for the company to assume, which risks should not be assumed and more importantly, how to manage the assumed risks. i3C helps its clients in strategic risks management by using cash flow at risk (CFAR) technique and other stochastic modeling tools. i3C also helps its clients make informed decisions regarding corporate portfolio management which are much more aligned to enterprise risk-return perspective.

Strategic risk management

Should a metal mining company hedge commodity at FC risks? What type of hedges (neutral or active) it should make? How does a bank decide on the effectiveness of a product launch or a geographical territory? What is the level of uncertainty in the strategic decisions the company is taking and what is the source of this uncertainty? All of these are important strategic choices companies make but they have little expertise in analyzing the possible impact of each move.

Credit risk management

Managing credit risk is all about analysing, managing and mitigating a customer’s the ability to pay and intention to pay. Various factors such as his age, income, education, marital status, business and personal interests, company financials, buyers, suppliers, economic situation have a bearing on either a client’s ability or intention to pay. i3C works with its clients to understand potential risk in the contracts and advising on measuring, managing and designing risk mitigants to control such risks.

Market risk management

Various market factors such as interest rate movement, volatility of equity market etc exposes most of the companies to huge financial losses on its portfolio. i3C works with its clients in understanding and managing market risk and typically, VAR based tools and stochastic analysis are performed.

Operational risk management

Operational risk is exposure to losses due to inadequate internal processes and systems and external events. i3C helps its clients diagnose and improve internal processes to ensure there are adequate and effective control measures defined to manage the various operational risks. Typical operational risk work includes development of operational risk strategy, appetite and policy, performing risk and control self-assessments, design of key risk indicators, operational loss measurement and mitigation, design of standard operating procedures, design segregation of duty and authority matrix, setup management dashboards for quick and efficient decision making etc.

  • Banking
  • Insurance

Sound risk management forms the cornerstone of any sustainable banking business. With the ever changing business environment, it is imperative for the banking organization to better assess the risk and its impact on the business sustainability. Experience from organizations like Lehman Brothers suggests that misreading of risk management can result in the demise of organizations that have withstood the test of time.

i3C, through its team of risk management experts, assists organizations in building a sophisticated risk management system, yet firmly grounded on sound business basics. We go an extra mile in demystifying the complex nature of risk that a bank is exposed to, so that it understands and manages risks effectively, rather than using a few black box models that can only be understood by a few people only. Areas where we help our clients are:

Enterprise Risk Management

Assessing, measuring and managing enterprise wide risk. The areas within ERM that we address are:

  • Defining risk appetite and strategy – We help our clients to map their business objectives with the risks faced and quantify the risk appetite. The risk appetite is then used to evaluate strategic alternatives and set objectives for business segments of our clients. An optimal risk return strategy ensures value maximization for the client by efficiently and effectively deploying resources to achieve the vision of the company
  • Formulating/ enhancing risk organization structure – We help fine tuning the existing risk organization structure to enhance effectiveness and independence of the risk management function
  • Creating risk identification measures – We establish processes and frameworks to relate risks associated with each product and activity through factoring of internal and external factors
  • Assessment and quantification of risks – We quantify the risks such as credit, market, operational, liquidity, interest rate risk through models which enable real time view of the state of business portfolio and riskiness
  • Risk Control – We help in establishing/streamlining policies and procedures to implement the risk strategy of the organization. Processes such as credit process, credit risk mitigation process, market risk management process, collection processes have a positive impact on business as well as risk management
  • Monitoring and reporting of risks – We create dashboards to assist the management gain an overall perspective on their risk portfolio in easy to use visual formats. Dashboards enable faster, reliable and automated flow of information and also generate customized reports depending on the needs of the client

Regulatory Compliance – Risk

We provide advisory to our clients to help them achieve regulatory compliance by creating/validating disclosures and identifying and controlling regulatory risks.

We have a highly experienced team of risk professionals who have helped multiple organizations with meeting regulatory compliance such as Basel implementation. We also provide advisory services in establishment of ventures in new jurisdictions, cost optimization for risk management systems and benchmarking against global best practices.

We seek to generate business value while ensuring fulfilment of regulatory requirements in any scenario.

We provide our risk regulatory compliance services in five major domains -

  • IFRS 9 - We work with our clients in helping them adopt the accounting standard focusing on risk prudent principles and early recognition of losses. We have helped multiple clients in an advisory and system implementation capacity in the areas of classification and measurement, stage determination, forward looking risk parameter estimation and expected credit loss computation under multiple scenarios. We have also helped our client address auditor and regulatory queries.
  • Basel implementation covering Pillar-I/II/III – We help our clients prepare for Basel 2 compliance (Standardized and Advanced), including preparing people, systems and processes. We help create best in class processes for capital calculation and planning along with policy implementation for effective risk management. We also assist our clients in preparing ICAAP disclosures and all supervisory discussions.
  • Asset liability management – ALM is one of the oldest disciplines in the risk management functions practiced by the banks. We help banking institutions in managing liquidity and interest rate risk through risk identification, assessment/ measurement, mitigation and control. We help address regulatory requirements through creation of tools and templates like structural and dynamic liquidity gaps, liquidity ratios (LCR, NSFR, internal ratios), interest rate sensitivity and measuring impact on profitability (NII and EVE), statistical and analytical models for behavioural profiling of assets and liabilities
  • Modeling - We create automated tools for our clients to help them measure credit, market, operational, liquidity and interest rate risks. We have experts who can develop risk models across risk domains (Credit Risk- PD, LGD, EAD), Market Risk (VaR), Operational Risk (VaR), ALM Models and Economic Capital Models. We also help our clients create data infrastructure to support the models.
  • Validation - We also assist our clients in independent validations of IFRS 9 models, risk models and ICAAP disclosures. Our service for model validation comprises of review of modeling assumptions, computational aspects, parameter calibration, data sources and best market practices

Risk analytics

We provide analytics driven insights to our clients on all major risk types for products as well as strategy development. We also help in data management and improving the speed and insights of the reporting mechanism. Our solutions involve using new or existing models in a synchronized manner to generate results at detailed as well as at a firm wide level.

Our main areas of assistance are -

  • Creating impact study for different strategies being deliberated by the management
  • Analyzing risk – return for all business segments
  • Create single data repository compiling information from internal as well as market sources
  • Provide analysis of historical data to generate business insights
  • Developing various types of scorecards viz. application, behavioural, early warning and collection scorecards
  • Analytics to minimize provisions to help banks mitigate the impact of increased competition and ever evolving regulations
  • Assess capital requirements, FTP, risk adjusted return and other parameters

Portfolio management

Managing a profitable and growing portfolio is a challenge facing most of the CXOs today. More so for a banking business which is in the business of accepting and managing risk. A bank that uses sound risk measurement can effectively understand the value that various segments of customers bring to the bank. This enables the bank in maximizing its Risk-adjusted return on capital while the bank can continue to pursue aggressive growth strategies. We work with our clients in various portfolio initiatives such as portfolio risk reviews, policies and portfolio level analytical models using constructs such as economic capital frameworks and portfolio performance dashboarding

Risk technology

Using technology solutions for managing risk better is what we offer at i3c. We work with industry leading solutions such as SAS, SAP to develop and implement risk models and analytical applications in areas such as Basel-II, scorecards, IFRS-9, risk reporting, Asset Liability Management to name a few. We also have our proprietary risk solutions developed on cutting edge technologies in these areas. Our unique blend of consulting, analytics and technology skill sets and experience offers a wholistic package towards managing risk better.

Insurance industry is so sensitive to risk of its customers that any unforeseen event can easily destabilize the sustainability of a company and can threaten its survival. It is hence imperative to understand the nature of risk before underwriting. It also needs to cede risk that ensures profitability for the company while maintaining solvency in business. Our risk management experts work closely with our client teams to make the organizational practices world-class in the following areas:

The focus of managing customer lifecycle is to assess and maximize the profitability of the portfolio.

  • Develop underwriting models for various lines of business
  • Develop pricing models for various lines of business
  • Redesign process and provide IT enablers for quick decision making

Risk strategy and capital optimization

We help our clients in optimizing returns on their capital by identifying key drivers that could be used to maximize returns. We provide analysis of impacts of change in key drivers such as risk appetite, capital level, reassurance, ALM and asset allocation. Our models enable estimation of probability of various events and are used to arrive at optimal capital planning.

We work with insurance companies to make them better understand the risk classes and overall portfolio risk. i3 Consulting also builds models to identify risk classes that will have maximum fat tail and will be worth reinsuring.

Quantifying the reduction in economic capital requirement by reinsuring risk classes is also provided along with identification of right price for purchasing reinsurance. Our engagement will help you in better understanding and management of economic capital.

Enterprise risk management

Enterprise Risk Management is a concept which is applicable across industries and more so for an insurance set-up which assumes the responsibility of a risk control function in a corporate function. We help our insurance clients define the maximum acceptable risk in terms of statements of risk appetite at the organization level and specific departmental level key risk indicators and help create dashboards for regular measurement and monitoring of the indicators. We work with our clients in defining and implementing ERM framework starting from risk governance to risk reporting and dashboarding addressing all the risk components as per the latest COSO standard. We have also helped our clients run stress scenarios to assess the impact of certain key business drivers in regulator rations such as solvency ratio or let loss ratio or other business or regulatory dimensions. We conduct risk assessment and help clients better understand their risk profile to devise mitigation strategies.

Fraud risk management

One of the challenges faced by the insurance companies is fraudulent claims. They not only increase the cost of claims processing, they also result in dissatisfaction of the customers in terms of increased processing time. Our team of professionals have experience of developing a sound strategy of managing fraudulent claims. The strategies developed can be coded onto IT systems to achieve automation and further the benefits of optimized fraud management.

Risk analytics

Risk management is very important for insurance industry as they themselves take over risks from customers. Every quantifiable factor is therefore an important tool which can be used to develop profiles of high and low insurance risk which determine insurance premiums and hence the business generated while covering acceptable amount of risks.

i3 Consulting helps its clients introduce more scientific approaches in overall underwriting process. Our solution incorporates combination of data mining and predictive and behavioral models to assess frequency and severity of claims. We use clustering, regression modeling and decision trees to predict frequency and value of claims to identify risk associated and potential payouts.

The business benefits by obtaining improved risk-adequate pricing of individual loans, avoiding adverse selection and provides guideline on business expansion without risking profits. We provide automation of operational decisions which improves quality as well as reduces costs.

We also assist our clients with our analytical capability for efficient and correct claim processing and also for product development.

Analytics help identify potential fraudulent claims like up coding, unbundling, double billing, false billing and overstated claims. We profile the client’s fraudulent claims and use historical data to predict potential fraudulent claims. These claims can then be scrutinized in greater detail providing our clients with effective focus.

The analytics can also be used to assess performance of field agents / surveyors on various KPIs such as time and volume through easy to use dashboards. These results can be used to define optimal process time and flow.

Our product development analytics help assess the risk based on the features designed in the new product developed through various methodologies i.e. statistics, simulation etc. We take advantage of our deep statistical expertise to provide specificities of risk and pricing that help shape products.

Insurance – Data Management

Data becomes the corner stone of any sound analytical program. Imagine ease of a salesman if he exactly knows the individual’s need while selling or the ease of a risk manager to underwrite an individual’s application if he has good clarity on risk. All of this can be achieved by developing sound databases that have clean, standardized and validated data that businesses can use with ease and confidence. Our data management experts help across the lifecycle of data management – i.e. ways of creating base cleansed and deduplicated customer databases to a sound risk data mart that can be used to run different analysis.

IFRS 17

The objective of IFRS 17 is to ensure that Insurance companies provide relevant information that faithfully represents insurance contracts. It focuses on establishing principles which lead to more objectivity in measurement and disclosure. IFRS 17 has far reaching impact not just on the technical calculations but also on other aspects of the Business including, Actuarial, Finance, Tax, Information Technology, Human Resource and last but not the least Financial Performance.

i3 Consulting is working with its insurance clients to help adopt IFRS 17 regulation with a January 2022 go live in the areas of gap analysis and implementation roadmap, impact assessment and implementation.

Gap Analysis and Implementation Roadmap

  • Identifying key areas of impact due to IFRS 17 adoption
  • Comprehensive assessment of the existing process, systems, data and methodologies in key areas with respect to the requirements of the accounting standard
  • Identify the gaps in the current practices for complying with the accounting standard
  • Based on gaps identified conducting discussions with key stakeholders to devise a detailed implementation roadmap and project plan

Impact Assessment

  • Identify the key drivers of the revised accounting standards
  • Agree on key assumptions for estimation for conducting the impact study
  • Extracting data required from source systems for carrying out calculations
  • Performing CSM calculations, measuring insurance liabilities as per new standard
  • Conduct sensitivity analysis to arrive at a range of outcomes
  • Identify qualitative aspects of impact through discussions

Implementation

  • Conducting business workshops for understanding requirements
  • Design and implementation of controls over financial reporting and new business processes as a result of the introduction of IFRS 17
  • Designing new policy frameworks, methodologies and governance structures
  • Designing, developing, testing and deploying the proposed solution
  • Training workshops for educating about various functionalities of the solution
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