The Research On The Extension Of Insurance Company’s Enterprise Risk Management Performance Evaluation Method

The assessment of insurance’s risk management practice includes two aspects: the design and the operation. This paper mainly focuses on the latter. When talking about the performance evaluation of risk management, people will generally think of risk-adjusted return on capital (RAROC) method; the literature about risk management performance evaluation is also mainly focused on the RAROC method. However, such a kind of financial-oriented approach to enterprise risk management performance evaluation has serious deficiencies in methodology. Based on this reality, the author draws on from management disciplines the existing research findings on the integration of Balanced Scorecard and enterprise risk management, and introduces the Balanced Scorecard into performance evaluation of risk management of insurance.This paper is structured into five chapters:Chapterl, Introduction. This chapter introduces the background and significance of the paper, the current situation of the domestic and international research, the innovations of this paper, as well as the direction of further research. Based on the briefly discussion of the inadequacies of the financial-oriented risk management performance evaluation method, therefore it needs to be extended. And thus leads to a literature review of the integration of enterprise risk management and balanced scorecard at home and abroad, analyses the deficiencies of the current research, at last introduces the subject of this paper.Chapter2, Enterprise risk management framework and its value. This chapter discusses features of the modern enterprise risk management compared with traditional risk management, discusses the value of enterprise risk management and the enterprise risk management framework for the insurance company.Chapter3, The analysis of the risk management performance evaluation based on RAROC. As the economic capital is the core of the enterprise risk management in insurance companies, and thus also the basis of RAROC, this chapter first discusses the calculation and allocation methods of economic capital in the insurance company. Then discusses in detail the risk management performance evaluation based on the RAROC approach, including its mathematical foundation, the evaluation mechanism, and economic added value (EVA) which is often used with RAROC. Finally, discusses the deficiencies of the financial-oriented evaluation method based on the RAROC, including its neglect of strategy risk, and deficiencies of RAROC itself as a financial evaluation tool. Based on these analyses, we need the extension of risk management performance evaluation method.Chapter4, The extension of the risk management performance evaluation method based on RAROC---the changes brought in by the Balanced Scorecard. This chapter first analyzes the connotation of the Balanced Scorecard as a performance assessment methodology as well as its construction. Through comparative analysis, finds that the Balanced Scorecard framework meets the demand of comprehensive performance evaluation system for enterprise risk management. Then further analyzes the factors that promote the integration of the Balanced Scorecard and enterprise risk management, including the commonality of management processes, the synchronization of implementation and the commonality of philosophy. Based on these, Proposes the enterprise risk management performance framework based on the Balanced Scorecard, and believes that the Balanced Scorecard only focuses on the assessment of the operational and strategy risk management. Next, discusses the principles of structuring the indicators of the Balanced Scorecard that should adhere to, and gives a presumed example that describes the practical application of the Balanced Scorecard. At the same time, talks about the benchmark analysis (benchmarking) and the analytic hierarchy Process (AHP) that assist the practical application of the Balanced Scorecard. Finally, discusses the significance of the balanced scorecard method brings in to risk management of insurance company.Chapter5, Discusses the difficulties and the related countermeasures when apply the Balanced Scorecard method in our country.Compared with the currently available research, this paper has the following innovations: (1) This article clearly states the neglect of strategy risk management of the current insurance company’s risk management performance assessment framework, and discusses in detail the reason why financial indicators alone can not effectively assess risk management performance.(2) Drawing on the findings of the integration of the balanced scorecard and enterprise risk management in management disciplines, extends the RAROC method and explicitly proposes the insurance company’s risk management performance assessment framework based on the Balanced Scorecard, and for the first time specifically discusses the significance of this assessment framework for insurance companies.