A Practical Approach to Model Risk Management and Governance in Insurance: A Practitioner’s Perspective

Abstract

The application of models in the insurance sector has historically posed both opportunities and problems. Robust model risk management and governance are essential as insurers increasingly depend on intricate models for decision-making. This paper provides a pragmatic viewpoint on tackling these difficulties, based on the experiences of an analytics professional. It addresses the fundamental elements of model governance, including the formulation of explicit protocols for model construction, validation, and oversight. The emphasis is on delivering a systematic methodology for managing model risks, encompassing essential tactics for risk identification and mitigation. Regulatory compliance, while significant, is but one component of a more extensive governance system that guarantees models function within acceptable risk parameters. The article delineates concrete measures for insurers to enhance their model management processes through the integration of real examples and advice, hence improving decision-making and operational resilience in a risk-sensitive context.