The importance of transparency in risk management: why sharing data matters

Authored by AXA XL Risk Consulting Regional Engineering Leader Tina King

Transparency is a game-changer in risk management. Sharing data can greatly improve how organizations handle and reduce risks. Surprisingly though, such sharing is not a habit among insurers or their clients.

Some insurance companies choose not to share risk assessment data with their clients for a variety of reasons including reluctance to share proprietary risk assessment methods and algorithms. Clients can be also reluctant to share data with their insurance companies, thinking that it may have a negative impact on their insurance coverage’s pricing or their terms and conditions.

Now though, with more data available than ever, and risks growing more complex every day, it's time to change our approach. The information at our fingers is very powerful. Protecting client data is always a top priority. Through access controls, strict data governance practices and anonymization techniques to maintain client privacy, however, collected data can provide valuable insights for the wider community.

Sharing is caring

As a risk engineer, I’m proud to play a hands-on role in helping our clients assess their risk and find optimal ways to minimize, or better yet, prevent losses. We’re tasked with thoroughly evaluating various aspects of a client's business or property to determine the likelihood and severity of potential losses. We examine factors such as building structures, fire prevention measures, and overall risk management strategies. By conducting comprehensive risk assessments, we help insurers, in my case, AXA XL, set appropriate premiums and coverage limits, ensuring that clients are adequately protected without overcharging or exposing the insurance company to excessive risk.

We also help clients enhance their risk mitigation measures and look for ways to reduce their cost of risk. That’s why sharing risk engineering reports is crucial. These reports contain valuable insights into potential risks associated with various insured properties or businesses.

Improved decision making

As mentioned above, some insurers share only top-level portions of these risk assessment reports with clients. AXA XL Risk Consulting shares the information it collects at clients’ facilities in its entirety via a platform called SiteForward. This web-based platform offers a suite of risk management capabilities and tools to help our clients visualize their business operations, track potential risk exposures and gain more insight to make informed risk management decisions.

When risk-related data is shared openly within an organization, decision-makers have access to a broader range of information. A comprehensive view allows for a more accurate assessment of risks and, consequently, more informed decisions. By having a clear understanding of the risks involved, managers and leaders can devise strategies that are both effective and efficient, ultimately leading to better business outcomes.

Insurers can also collectively build a more accurate and comprehensive understanding of risks, which ultimately leads to more informed underwriting decisions. This promotes risk mitigation as insurers can collectively identify trends and best practices for risk reduction, thereby reducing overall claims and losses.

Enhanced trust and collaboration

Transparency fosters trust, not just within the organization but also with external stakeholders such as investors, regulators, and the public. When a company is open about its risk management practices, it demonstrates a commitment to honesty and responsibility. This openness can strengthen the trust of stakeholders in the organization’s ability to manage risks effectively.

Internal transparency encourages collaboration among different departments, breaking down silos that often hinder effective risk management. Employees are more likely to engage in open communication and share valuable insights when there is a culture of transparency. This is particularly important in engaging employees in risk management efforts.

Compliance and regulatory benefits

In many industries, there are regulatory requirements for risk management transparency and data sharing. These regulations are designed to protect the public, the environment, or the market from potential harms that might arise from an organization's activities.

By embracing transparency and data sharing, companies not only comply with these regulations but also can often stay ahead of potential regulatory changes. This proactive approach can save significant costs and prevent legal issues that might arise from non-compliance.

Learning and continuous improvement

Sharing data and maintaining transparency in risk management processes enables organizations to learn from past mistakes and successes. This learning leads to continuous improvement in risk management practices.

By analyzing data from previous risk events, businesses can also identify patterns and develop strategies to prevent similar incidents in the future. This continuous improvement cycle not only reduces the likelihood of risks but also enhances overall business resilience.

Risk recommendations to make improvements are a big part of the risk assessment. When investing in risk management, it’s nice to have different options. Our risk engineering reports are not focused on one resolution; they lay out options. Risks can be managed in different ways. Having ample data in front of us, we can determine more options to offer clients so they can determine where to put their risk management investment.

Better stakeholder engagement

Transparency and open data sharing also lead to better engagement with stakeholders. When stakeholders are well-informed about an organization’s risks and how they are being managed, they can provide valuable feedback and support. This engagement can be particularly beneficial in identifying potential blind spots in an organization’s risk management strategy and in garnering broader support for necessary changes or initiatives.

Actively sharing opens up a dialogue and deepen relationships. Using our collected data, we take the consultative approach. Some clients consider us as an extension of their own risk management department. We’re on weekly calls with them. We make visits during construction or renovations of new facilities. And, if they are purchasing a building, they turn to us for our thoughts on everything from location to building materials.

Final thoughts

Transparency and data sharing in risk management are not just ethical practices but also essential for business success. They enable better decision-making, enhance trust, ensure compliance, foster continuous improvement, and improve stakeholder engagement. As the business world becomes more complex, the importance of these practices will only grow.