Like its European counterparts, the South African insurance industry is moving towards its own risk-based regulatory regime, Solvency Assessment and Management (SAM). As a result greater focus is being placed on the appreciation of risks facing firms, of which operational risk forms a significant part.

This paper aims to review operational risks as they pertain to South African insurers. Consideration is given to the implications of this ‘insidious’ risk for both internal risk-management practices and for the purposes of regulatory compliance.

A survey of South African insurers was conducted so as to investigate the perceptions towards the various aspects of operational risk. The survey also sheds light on the current significance of operational losses to the industry and the current status of operational risk management practices.

Through an operational-risk management framework, the paper presents principles and initiatives that have the potential to assist insurers in their identification and management of their operational risks. Furthermore, the use of operational-loss data in this framework is discussed as it is believed that is a valuable tool at every stage. The paper looks at the more specific uses of this data as well as the sources of the data.

Prompted by our finding of a lack of applicable operational-loss data sources for local insurers, a high-level investigation was done into the feasibility of an industry-wide operational-risk consortium.