Why Doesn’t Bank Risk Management Include Insurance?

Here is a typical bank publication article on risk management .  The word “insurance” is not included once.

I have searched the trade media for bank risk management, and find almost no mention of insurance.

How is that possible?

Banks certainly are in the business of managing risk.  Chief Risk Officers discuss credit risk, interest rate risk, compliance issues, operational risk, and strategic risk.  CEOs and CFOs spend a huge part of their day considering risk.

Shouldn’t a systematic review of the breadth and quality of insurance coverage be a part of the management of risk?

Banks implement systems to prevent fraud.  What if those systems fail?  Shouldn’t insurance be a fall-back position?

What if it turns out that a bank’s insurance is inadequate?  Now we have two failures – failure to prevent and failure to mitigate.

A review of your bank’s insurance program will not prevent a loss – it’s a contingent act.  A sprinkler system does not prevent a fire.  It reduces the severity of the fire. What would you think of a maintenance person who never tests the functioning of your building’s sprinkler system?  How is it any different when the CEO does not test the robustness of the insurance coverage the bank depends upon?