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Implementation of Four Eyes Principles in Enterprise Risk Management (Part II)

Mechanism for the Implementation of Four Eyes Principles (FEP)
In general, mechanism for the implementation of four eyes principles is applied by Risk Officers (RO) to help provide a risk review to the Committee. However, they also have their own duties and responsibilities that represent the interests of risk management in the company.
The application of four eyes principles (FEP) by the Business Closing Committee covers all products of insurance/credit guarantee companies both at the Head Office and the Branch Offices in accordance with the applicable Limit of Decision-Making Authority.
The Risk Officer (RO)’s workflow in the Business Closing Committee for each head office and branch office is different depending on the organizational structure and limit of decision-making authority of the Committee. Generally, however, the Risk Officer (RO)’s workflow is as follows:
The application for closure/acceptance from customers of insurance/credit guarantee companies responded by the operational work unit is analyzed by underwriting analysts in accordance with prudential principles. The results of this underwriting analysis will be re-analyzed by the RO and the results will be submitted to the Committee for them to take a risk-based acceptance decision. All members of the Committee will receive the underwriting results for further analysis based on their respective competencies.

  1. RO  as an independent party helps the Committee check the underwriting result to ensure that it has been in accordance with the underwriting analysis requirements applicable in SOP and perform risk analysis on various possible risks arising from the acceptance application submitted by customers.
  2. RO provides recommendations and results of risk analysis to the Committee by using the risk analysis form provided for each product so that the representative of the operational unit that undertakes the acceptance process can take a decision whether to reject or accept the acceptance application.
  3. The risk recommendations and review provided by the RO are non-binding and independent in nature.
  4. RO will input data on the results of his/her activities in the Committee into the four eyes principles (FEP) application program that has been completely and properly provided. The input process of the data on RO activity results in the Committee at all branch offices and the head office can be stored in a database so that they can be monitored and evaluated by the risk management unit at the head office.

Target of the Implementation of Four Eyes Principles (FEP) Based on Insurance Value Classification, Credit Ceiling, Credit Limit, and Limit of Liabilities
In the long run, the implementation of FEP is directed to all work units in both head offices and branch offices. The implementation of FEP is also focused on the classification of the insurance value, credit ceiling, credit limit and limit of certain liabilities which are considered big and risky for each product in accordance with the limit of insurance coverage classification set out in the internal regulations of the company concerning the delegation of authority to propose, assess, decide and sign the Insurance Policy/Certificate of all Company’s products that are expected to require intense risk management through decision-making mechanisms in the Committees, especially the Business Closing Committee. The classification of insurance coverage, credit ceiling, credit limit and limit of liabilities which are the focus of FEP implementation will be evaluated each year according to the needs and demands of the company in managing transactional risk.

The Risk Analysis Form used by the Committee
After determining the targets of FEP implementation which include insurance coverage, credit ceiling, credit limit and limit of liabilities of each product in each branch office and head office as described above, the RO will provide risk recommendation and review using the recommendation form and risk analysis.

The ultimate goal of implementing FEP in the process of business closure, claims settlement and investment management performed by the operational unit/business unit/investment unit in all work units is to establish a more effective and efficient risk management so as to minimize the risks faced by the company.
In addition, the implementation of FEP is intended for the implementation of Good Corporate Governance (GCG) to run effectively which will ultimately increase the company’s value. Thus, the active participation of all levels in the company at both the head office and the branch office (especially RO) is needed in the application of FEP, supported by high integrity, professionalism and compliance with the prevailing laws and regulations.

By: Mulyono, SE, MM, CRMP, BCMCP