Operational Risk (Operationelles Risiko)
Operational risk is the risk of loss resulting from inadequate internal processes, people, systems, or from external events, and is treated as a distinct risk category under Solvency II.
Concept
Operational risk refers to the risk of loss resulting from inadequate or failed internal processes, from the conduct of employees, from system failures, or from external events. It must be clearly distinguished from insurance risk and market risk, since it does not arise from the business activity consciously undertaken itself, but from its flawed execution.
Typical Manifestations
Typical manifestations of operational risk include IT outages and cyberattacks, fraud committed by employees or third parties, errors in claims handling or premium billing, failure to comply with regulatory requirements (compliance risk), and reputational damage resulting from publicly disclosed misconduct.
Relevance under Solvency II
Under Solvency II, operational risk is incorporated as a distinct risk module in the calculation of the Solvency Capital Requirement (SCR), with the standard formula using a simplified approach based on premium and reserve volumes; larger insurers using an internal model, by contrast, frequently must quantify operational risk using more granular methods such as scenario analysis and historical loss databases.