Investigation of risk management changes in insurance companies

Abstract

This thesis studies the change process of risk management practices associated with the implementation of Enterprise Risk Management (ERM) and the extent to which it can lead to changes in capital allocation practices. The study develops a theoretical framework to study risk management changes, which draws on structuration theory (Giddens, 1979, 1984) and institutional theory, particularly the institutional framework of Burns and Scapens (2000), as well as new institutional sociology theory. A two-stage empirical study was undertaken in non-life insurance companies. The first stage was a field study of 10 listed non-life insurance companies, while the second stage was a case study of a large non-life insurance company. Multiple data collection methods were used including semi-structured interviews, documentary evidence, annual reports, and publicly available data. Findings show internal, coercive, and normative pressures have mainly driven the ERM adoption decision. The literature supports the impact of coercive, mimetic, and normative pressures on the trend toward ERM in financial industries. However, the study finds that internal pressures related to achieving the company's objectives are either equal to or surpass the external pressures. The study also provides empirical evidence of the changes in risk management practices, which include capital allocation change process associated with ERM implementation. Effective capital allocation requires the incorporation of ERM elements in the whole process of allocating capital. Furthermore, new capital allocation routines and institutions are produced. The study shows that the risk-based capital allocation method is intra- and extra-institutionalised at the company level. The main contribution of this thesis is to identify the nature of ERM adoption and implementation in insurance companies. More specifically, this study provides a better understanding of the institutional forces driving ERM adoption and offers empirical evidence on ERM implementation and the change in risk management practices (routines) within nonlife insurance companies. Moreover, this study avoids the limitations of previous research that was based on surveys, and it does so by conducting an exploratory field study and explanatory case study to address the changes in risk management practices. Practices and process need to be located in their institutional context and hence cannot be reflected in surveys.