Key risk indicators (KRIs) are a great way for businesses to keep track of issues and opportunities. There are many risk indicators; businesses have the choice to pick the indicators of their choice and track them as their key indicators. This helps isolate the signal from the noise; instead of looking at hundreds of indicators, management can choose the indicators that provide the insights needed to make executive decisions. The best approach is to make the KRIs visible to stakeholders on executive dashboards to ensure that KRI insights are factored into executive decision-making.

Complimentary White Paper - Top 10 Risk Management Trends for 2022

As the world shut down in the early months of 2020, every industry had to deal with unforeseen problems and the world, and its economy are still only beginning to bounce back. The banking sector always has its pulse on both the economy and the society; it is always trying to anticipate the way the world is moving so it can make the right decisions right now. As the pandemic instantly changed the outcomes for every industry in the world, bankers were quick to adapt to the new normal and to understand how they could best protect the interests of their clients and their employers.

Bankers are therefore some of the most informed people to get in touch with during uncertain times, as they are experts in making educated guesses and estimating new trends. 360factors thus took the opportunity, during one of its own webinars being attended by hundreds of bankers, to ask them what they thought were the most important risk categories during these times.

These key risk indicator categories represent, according to hundreds of bankers across the country, the biggest areas of concern for the banking industry right now. These are the indicators which are telling the stories that bankers need to hear, which is why these are the metrics the bankers are using. It may have been expected that bankers would be looking at key operational risk indicators but the most important indicators, the ones that bankers were prioritizing above the rest, were credit related indicators.

The pandemic has impacted industries to a different degree. Businesses that were involved mostly in online commerce have benefited from the pandemic. Click To Tweet

Here is how the bankers categorized the most important KRIs:

  • Credit
    • Loan Defaults
    • Loan Delinquencies
    • Non-performing Loans
  • Key Operational Risk Indicators

    • Fraud
    • Customer Request Volume
  • Market

    • Unemployment Statistics
    • Business Closing

Credit KRIs

Credit related KRIs topped the list for bankers because these metrics are highly predictive in nature. Loan defaults have proven to be an extremely important indicator of how the economy will perform. Bankers are looking at the rate of loan defaults by businesses and individuals in different industries to determine which industries are being hit the worst by the pandemic and which ones will be able to easily recover. The same is true for loan delinquencies and non-performing loans, both indicators that the businesses and other clients in the industry or area are underperforming.

The pandemic has impacted industries to a different degree. Businesses that were involved mostly in online commerce have benefited from the pandemic. Industries that help people work from home or entertain themselves at home have seen a major increase in business. The telecommunication industry is reporting higher usage and the video game industry is reporting higher sales. Airlines and the hospitality industry are reporting historic lows and it is easy to see why – flights are banned in most countries and tourism is banned almost everywhere. Business conferences have shifted to online, which has further reduced the customers of both the airline and the hospitality industry.

Credit related KRIs help mid-sized banks understand how the pandemic is affecting the local business community in finer detail. It is critical to get this information for bankers because they have access to the data and can thus be the first ones to understand the financial standing and the future of the local economies.

Operational KRIs

Operational KRIs were the second most important set of KRIs being evaluated by risk and compliance professionals. Bankers were keeping a close watch on fraud related metrics to ensure compliance during the disruptions to operations. Customer request volume was another important metric – showing what areas of banking customers were now opting for and which ones they were avoiding.

It is important to remember that while the shutdowns being experience across the world are temporary, the pandemic will change the way we conduct business in many ways forever. Banks are looking at how customers are acting right now to determine the safest and most comfortable customer experience for the post-pandemic era.

Market KRIs

While credit related KRIs are important to determine how the market will be in the future, market KRIs are important in shedding a light on the biggest problems in the market right now. Bankers are looking closely at unemployment statistics across the country. High unemployment has a significant effect on the economy. Not only does high unemployment show that businesses are facing lower demand and thus reducing the workforce, unemployed people also cannot participate in the economy anymore which makes it harder for the economy to recover.

Enterprise Risk Management Software

Compliance Key Risk Indicators

Compliance key risk indicators help businesses unearth compliance framework weaknesses. Businesses can track not just the overall performance of the compliance department but also the efficiency of different compliance processes. This visibility allows businesses to detect the least efficient processes and rework them. Compliance KRIs also help businesses put their performance in context by making it easier to compare their performance with their peers. The data generated from compliance violations and corrective actions proves to be very valuable for management. This data can be fed to help the organization understand its risk exposure better.

Key risk indicators for insurance company

Insurance companies also make use of key risk indicators to ensure that their risks are within tolerance levels. Key risk indicators are especially critical in the insurance sector because the insurance sector principally deals with losses. If there are lots of losses, the insurance company may have trouble meeting all its financial obligations. Keeping close track of KRIs ensures that this never happens. If the losses are above tolerance levels, key risk indicators provide a warning to insurance companies at an early stage, providing them the time required to get the funding they need.

KRIs are also useful in the insurance sector because they allow an organization to be aware of its overall leverage in real-time. There is no need to wait for reports that have been compiled manually; management can instead look at real-time data being generated through key risk indicators. Some organizations record KRIs manually which enables them to keep track of performance and risks. However, the lack of real-time visibility into risks can mean that the business will not know about being in a disadvantaged position until it is too late. Most established insurance businesses, therefore, focus on enhancing their KRI tracking capabilities.

Keeping track of multiple categories of risk indicators in real-time can be impossible manually – that is why mid-sized banks are now opting for enterprise risk management software which can continuously monitor and manage risks. Interested in seeing what such a solution can do for your organization? Get in touch with our risk experts for a demo, or sign up for our upcoming webinar on September 1 to see our solution in action.