Ferma calls on risk managers to take AI leadership role

Ferma is calling on risk managers to identify and mitigate risks associated with artificial intelligence (AI), while using the technology as a risk management tool. Publishing a guide to help members manage AI risks, Ferma said the technology could take risk management to “a new level” but also presents new threats for companies, particularly around data security and privacy. “The development of this technology, combined with the ever-increasing amount of data available – which plays a key role – seems to be driving a new AI era. Risk management will not be excluded,” Ferma says in the Artificial Intelligence Applied to Risk Management report. Increases in computing power and the availability of data in recent years have enabled companies in many industries to explore uses for AI, such as powering autonomous vehicles and robots, carrying out advanced analytics and creating virtual advisers in industries such as healthcare, banking and law. AI could also support risk management functions. For example, by using data to identify emerging risks, or providing day-to-day assistance and guidance in the risk management processes, while also automating functions like claims. In addition, AI is increasingly being used by brokers and insurers to increase efficiency and provide new services to customers. “We expect corporate risk management to benefit from AI in several areas. From its ability to process large amounts of data, to the auto-mation of certain repetitive and burdensome risk management steps, AI could allow risk managers to respond faster to new and emerging exposures,” Ferma says in the report. It adds that AI can create awareness of new exposures and boost risk prevention through faster response times in critical situations. It can also facilitate better decision-making for both risk managers and top management through greater predictive insights and risk visibility, the report continues. “By acting in real time and with some predictive capabilities, risk management could reach a new level in supporting better decision-making for senior management,” it says. AI could ultimately overcome “current limitations” in risk management, according to Ferma. “Decisions that have previously been made mainly ‘from the gut’ or by benchmarking will become data-driven and systematic,” it says. However, AI will also bring new risks to corporations. In its report, Ferma identifies 14 themes and 26 key issues around AI that could increase strategic, operational and business risk. Chief among these were data security and privacy, new liabilities and regulation. There are also social and environmental considerations, as AI consumes high levels of energy. Furthermore, it will have implications for employees and talent, including a potential loss of human expertise and experience. “As with every new technology, there are emerging risks and challenges related to AI. Questions on ethics, equality, biases, trustworthiness and reliability of decisions made or suggested by AI, are just some of the topics that need attention. Transparency of algorithms and increasing cyber risks are also issues for the risk manager to address,” the report warns. In order to manage AI risks, organisations need to analyse their risk profile through their enterprise risk management (ERM) framework, according to Ferma. The COSO 2017 ERM Framework, for example, gives the foundations for such analysis, it says. The report includes an action guide for risk managers to help identify key areas in which they can apply AI methods, and take a leadership role in their company. It also contains an AI “roadmap” that risk managers can apply when they are considering using AI technologies for ERM. The report aims to kick off a broader discussion on AI and risk management, according to Ferma. It contains an initial assessment of AI’s potential to improve ERM. It also explores how risk managers can be “key actors” in highlighting the opportunities and challenges of AI technologies to leaders. The report says risk managers can help their organisations prepare for AI technology and manage change, including at a strategic level. “Faced with the progress of AI, risk managers need to position themselves as value drivers within the organisation and as AI risk advisers to senior management and the board,” says Ferma. “Companies should start their journey of AI if they want to be at the forefront of risk leadership. In that way, they will build the foundation for a technology that soon will reshape the way we deal with risks,” it adds. Progress made on GDPR Companies have made progress on General Data Protection Regulation (GDPR) compliance and any future review of the regulation should seek to embed data and privacy risk management into everyday business operations, concludes a joint research paper from Ferma and the internal auditors organisation ECIIA. The new report, entitled GDPR & Corporate Governance: The Role of Internal Audit and Risk Management One Year After Implementation, explains that the EC will assess and report on the progress of the GDPR in 2020. It includes key findings from a survey of auditors and risk managers and makes recommendations for stakeholders – including European authorities, governance bodies, auditors, risk managers and data protection officers. The GDPR was implemented in May 2018 and introduced tougher data protection and privacy requirements for organisations, as well as new rights for consumers and greater powers for regulators. According to the report, most European organisations invested significant efforts to comply with the regulation. It finds that substantial progress has been made to integrate GDPR compliance into existing corporate governance frameworks, and to adapt corporate governance to address GDPR challenges. With a number of high-profile data breaches and large fines under the GDPR since it came into force, compliance with the regulation has posed a risk management challenge for many companies, the report notes. “Across Europe and beyond, compliance with the GDPR, or more accurately, compliance failures, have gained significant attention. Organisations need to respond to stakeholders’ concerns about personal data, and boards need independent opinion,” states Ferma in the report. The report goes on to say that the next GDPR review should recognise the relevance of a corporate governance framework, such as the Three Lines of Defence model, to privacy risk management within organisations. It should also preserve the ability of organisations to innovate, it adds. To view a pdf version of our Ferma Forum day 2 newspaper click here

Ferma calls on risk managers to take AI leadership role

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