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Finance risk assessment

Life and Health Insurance Operations Risk Assessment: Claims, Data and Conduct Controls

A worked example of how an insurance operations team finds, scores and controls risks in life and health claims, policy administration, customer data, conduct and reporting, showing inherent and residual ratings.

Updated November 2026 8 hazards assessed Review every 6 months Highest risk: Critical to Medium
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Executive summary

This assessment shows how a life and health insurance operations team can find, rate and control the risks that matter most to claims outcomes, customer trust and reliable records. Eight risks were chosen because they are plausible in everyday claims, administration, finance and compliance work. Data and cyber exposure carries the highest inherent score because health records are sensitive and widely shared. Claims errors and fraud are likely enough to need steady checks, while conduct and reporting risks are less frequent but serious when they occur. Each risk is scored before controls and again after existing and added controls. Most risks fall to Medium or Low once the proposed controls are in place. The first actions are an evidence checklist for claims, call back checks on bank changes, multi-factor sign in and a tested restore. The insurer is a teaching example, so every score illustrates method rather than describing a real business.

Focus area
Life and health insurance operations
Setting
Operations of a mid-sized life and health insurer with claims, policy administration and finance teams
Method
Five by five likelihood and impact risk register

Scope

This assessment covers day to day life and health insurance operations, including policy administration, premium collection, claims assessment and payment, customer data, reinsurance recoveries, finance reconciliation and regulatory reporting. It looks at risks to customers, staff, assets and trust. It does not cover actuarial pricing models, investment strategy or the legal position of any real insurer. Jurisdiction, product mix and systems are assumptions made for teaching.

Context

The example insurer sells individual life cover and group health plans through brokers and direct channels. Claims are received by a central team, medical information is requested from providers, and payments are made by bank transfer. Policy data sits in an administration system, with spreadsheets used for some reserves and reconciliations. Reinsurers share large life risks, and the board receives quarterly performance and conduct reports. Each risk is scored before controls to show its natural level, then again after existing controls and the additional controls proposed here.

Objectives, assets and stakeholders

The objective is to pay valid claims accurately and on time, protect customer and policy data, keep operations free of fraud and conflicts, meet regulatory and tax duties, and keep the confidence of policyholders, shareholders, regulators and reinsurers. The assets in scope are policy and claims records, medical information, bank accounts and payment systems, reserve calculations, reinsurance agreements and the reputation of the operations team. Stakeholders include policyholders and beneficiaries, brokers, staff, the board, auditors, reinsurers, providers and the supervising authority. Every risk has one owner role, and the operations manager keeps the register current and reports to the board each quarter.

Risk matrix: before and after controls

Each cell shows hazard numbers placed by likelihood and impact. Compare the two grids to see how controls move each hazard.

Before controls

Inherent risk

Risk before controls: rows are likelihood from almost certain to rare, columns are impact from insignificant to catastrophic. Cells list hazard numbers.
1
Insignificant		 2
Minor		 3
Moderate		 4
Major		 5
Catastrophic
5 Almost certain
4 Likely Likelihood 4, impact 4, score 16, high: H01 Likelihood 4, impact 5, score 20, critical: H03
3 Possible Likelihood 3, impact 4, score 12, high: H04 H06 H07 Likelihood 3, impact 5, score 15, high: H02
2 Unlikely Likelihood 2, impact 4, score 8, medium: H08 Likelihood 2, impact 5, score 10, high: H05
1 Rare

After controls

Residual risk

Risk after controls: rows are likelihood from almost certain to rare, columns are impact from insignificant to catastrophic. Cells list hazard numbers.
1
Insignificant		 2
Minor		 3
Moderate		 4
Major		 5
Catastrophic
5 Almost certain
4 Likely
3 Possible
2 Unlikely Likelihood 2, impact 2, score 4, low: H06 Likelihood 2, impact 3, score 6, medium: H01 H04 H05 H07 Likelihood 2, impact 4, score 8, medium: H02 H03
1 Rare Likelihood 1, impact 4, score 4, low: H08
  • Low 1 to 4
  • Medium 5 to 9
  • High 10 to 16
  • Critical 17 to 25

Hazard register

A summary first, then the detail for each hazard.

Summary of hazards with scores before and after controls
No.HazardBeforeAfterOwner
H01 Claims assessment and payment errors 16 High 6 Medium Head of claims
H02 Fraudulent claims and misappropriation 15 High 8 Medium Fraud investigation lead
H03 Data quality and cyber exposure 20 Critical 8 Medium IT security manager
H04 Access rights and segregation of duties 12 High 6 Medium Operations manager
H05 Conflicts of interest and sales conduct 10 High 6 Medium Compliance officer
H06 Reserve estimates and valuation uncertainty 12 High 4 Low Reserving lead
H07 Reinsurance and counterparty exposure 12 High 6 Medium Reinsurance manager
H08 Regulatory returns, tax and governance failures 8 Medium 4 Low Company secretary
H01

Claims assessment and payment errors

Operational Before 16 After 6

Claims are paid on incomplete medical evidence, wrong policy terms or duplicate records, or valid claims are delayed, so members receive wrong or late payments.

Who or what is affected: Policyholders, beneficiaries and claims staff

Causes

High volumes, incomplete medical evidence and rules that staff apply from memory.

Consequences

Overpayment, underpayment, complaints and regulator attention.

Existing controls

  • Claims are checked against the policy schedule before payment.
  • A senior claims handler approves claims above a set value.

Control gaps

Sampling covers few files, and late claims are not tracked by age.

Additional controls

  • Prevent: Use a standard evidence checklist that must be complete before any payment is released.
  • Detect: Sample paid claims each month and recheck medical and policy details against source records.
Likelihood 4 x impact 4 before; 2 x 3 after Owner: Head of claims Target: Within 45 days Early warning: Claims open for more than 30 days without a documented reason.
H02

Fraudulent claims and misappropriation

Financial Before 15 After 8

False claims, altered bank details or payments diverted to an employee or intermediary take money from the fund, often in small amounts that pass routine checks.

Who or what is affected: Policyholders, shareholders and employees

Causes

Pressure on staff, weak checks on bank changes and collusion with providers.

Consequences

Direct loss, recovery costs, regulator attention and loss of trust.

Existing controls

  • Bank details are checked against the member record before first payment.
  • Claims above a threshold are referred to an investigator.

Control gaps

Analytics are run quarterly, so patterns are found late.

Additional controls

  • Prevent: Confirm every change of payment details through a call to a known contact before payment.
  • Detect: Run monthly analytics for repeated payees, shared bank accounts and claims made soon after cover starts.
Likelihood 3 x impact 5 before; 2 x 4 after Owner: Fraud investigation lead Target: Within 45 days Early warning: A payment to a new bank account that was not confirmed by a call back.
H03

Data quality and cyber exposure

Technology and data Before 20 After 8

Weak passwords, phishing and copied spreadsheets expose sensitive health and policy data, while poor records and manual transfers between systems cause wrong premiums and wrong claim outcomes.

Who or what is affected: Policyholders, staff and business partners

Causes

Phishing, reused passwords, shared files and legacy interfaces.

Consequences

Data breach, notification duties, wrong payments and loss of trust.

Existing controls

  • Health records are encrypted in storage and access is logged.
  • Staff complete an annual data handling course.

Control gaps

Spreadsheets holding reserves and claim summaries sit outside access controls.

Additional controls

  • Prevent: Enable multi-factor sign in for all administration and claims systems and block personal email for data transfers.
  • Recover: Test restoring policy and claims data from backup each quarter and keep a written recovery plan.
Likelihood 4 x impact 5 before; 2 x 4 after Owner: IT security manager Target: Within 30 days Early warning: Repeated phishing reports or a failed restore test in the same quarter.
H04

Access rights and segregation of duties

Operational Before 12 After 6

One person can register a new policy, approve a claim and release payment, or keeps access after moving role, so errors and misuse go unseen.

Who or what is affected: Operations staff, policyholders and auditors

Causes

Small teams, rights added but not removed, and shared login details.

Consequences

Undetected error or misuse, failed audit testing and loss of funds.

Existing controls

  • Each user signs in with an individual account.
  • Payments above a limit need a second approval.

Control gaps

Access is reviewed only when someone leaves the team.

Additional controls

  • Prevent: Map roles to permissions and remove any mix that lets one person set up, approve and pay.
  • Detect: Review user rights and approval logs each quarter and record the outcome.
Likelihood 3 x impact 4 before; 2 x 3 after Owner: Operations manager Target: Within 60 days Early warning: A user who holds both entry and approval rights for claim payments.
H05

Conflicts of interest and sales conduct

Legal and compliance Before 10 After 6

Agents are paid to sell cover that does not suit the customer, or an employee assesses a claim linked to a relative or business partner, which weakens fair treatment and trust.

Who or what is affected: Customers, sales partners and staff

Causes

Commission pressure, close personal links and unclear rules on gifts.

Consequences

Unfair outcomes, complaints, disciplinary action and reputational harm.

Existing controls

  • A code of conduct is signed each year.
  • Staff declare outside interests when they join.

Control gaps

Declarations are collected but never compared with live claims or sales.

Additional controls

  • Prevent: Require a written conflict check before any claim above a set value is assigned to a handler.
  • Respond: Give staff a confidential route to raise concerns and record how each one was handled.
Likelihood 2 x impact 5 before; 2 x 3 after Owner: Compliance officer Target: Within 60 days Early warning: A declared interest linked to a claim or sale handled by the same person.
H06

Reserve estimates and valuation uncertainty

Financial Before 12 After 4

Claims reserves and future benefit estimates rest on assumptions about mortality, morbidity and claim delay that may be optimistic, so balances and results are wrong when experience changes.

Who or what is affected: Management, shareholders and auditors

Causes

Reliance on one data source, pressure for good results and assumptions that are not revisited.

Consequences

Misstated results, poor decisions and later adjustments.

Existing controls

  • Reserves are reviewed by the reserving team at each reporting date.
  • Key assumptions are recorded in the working papers.

Control gaps

Estimates are not compared with outcomes often enough to reveal bias.

Additional controls

  • Prevent: Document each key assumption with its evidence and test a low and a high case.
  • Detect: Compare past reserve estimates with actual claim payments and report the differences.
Likelihood 3 x impact 4 before; 2 x 2 after Owner: Reserving lead Target: Within 90 days Early warning: A reserve adjustment above the usual level for the same product.
H07

Reinsurance and counterparty exposure

Supplier Before 12 After 6

A reinsurer or third party administrator fails, delays recoveries or disputes a claim, so the business pays out money it expected to recover from others.

Who or what is affected: Shareholders, policyholders and operations staff

Causes

Concentration in a few counterparties and long settlement periods.

Consequences

Cash shortfall, delayed payments and higher capital cost.

Existing controls

  • Reinsurers are checked for financial strength before contracts are signed.
  • Recoveries are tracked in a monthly schedule.

Control gaps

Recovery disputes are logged but not reported to senior management.

Additional controls

  • Prevent: Set limits on exposure to any single reinsurer and review them each quarter.
  • Respond: Agree a standby claims funding plan and a contact order for a supplier failure.
Likelihood 3 x impact 4 before; 2 x 3 after Owner: Reinsurance manager Target: Within 60 days Early warning: A recovery overdue by more than 60 days or a counterparty rating change.
H08

Regulatory returns, tax and governance failures

Legal and compliance Before 8 After 4

Filing deadlines, disclosure rules or tax treatments are missed or misapplied, and the board lacks the management information needed to oversee the business.

Who or what is affected: Management, board and regulators

Causes

Rules that differ by jurisdiction, small teams and last minute preparation.

Consequences

Penalties, restated filings and loss of regulator trust.

Existing controls

  • A calendar lists the main filing dates.
  • Board reports are issued each quarter.

Control gaps

Jurisdiction is assumed, and current rules are not checked before each filing.

Additional controls

  • Prevent: Keep a compliance calendar with an owner and backup owner for every return, reviewed monthly.
  • Detect: Ask a qualified reviewer to test a sample of returns against current rules each year.
Likelihood 2 x impact 4 before; 1 x 4 after Owner: Company secretary Target: Within 30 days Early warning: A return due within 10 days with no preparer or reviewer named.

Rating method and evaluation

Each risk is rated on two five-point scales. Likelihood runs from Rare to Almost certain, and impact runs from Insignificant to Severe. Multiplying the two gives a score from 1 to 25, which falls into one of four bands: Low from 1 to 4, Medium from 5 to 9, High from 10 to 16 and Critical from 17 to 25. The score guides the order of work and is not a precise measurement. Inherent risk is the score before any controls, and residual risk is the score after existing and added controls. Impact is judged on customer harm, money lost, time to correct, effect on reported results, regulator attention and damage to trust. A conduct or data risk is never rated down only because it has not yet happened. Any residual score still High needs senior attention and a dated plan, any Medium needs routine controls with a named owner, and any Low is accepted and watched. Staff who do the work should challenge each rating, and every rating is reviewed when an indicator reaches its threshold or when a process changes.

Likelihood, impact and rating bands

Likelihood

  • 5 Almost certain: Expected to happen in most circumstances.
  • 4 Likely: Will probably happen in many circumstances.
  • 3 Possible: Could happen at some time.
  • 2 Unlikely: Not expected, but it could happen.
  • 1 Rare: Only in exceptional circumstances.

Impact

  • 1 Insignificant: No lasting effect. Handled within routine work.
  • 2 Minor: Small effect that is quickly corrected.
  • 3 Moderate: Noticeable effect that needs managed effort to correct.
  • 4 Major: Serious effect on people, delivery or reputation.
  • 5 Catastrophic: Severe or lasting effect that threatens the whole activity.

Bands (likelihood x impact)

  • Low (1 to 4): Accept and monitor.
  • Medium (5 to 9): Manage with routine controls.
  • High (10 to 16): Senior attention and a treatment plan.
  • Critical (17 to 25): Act first. Do not proceed until reduced.

Monitoring, escalation and review

Review this assessment every 6 months, and sooner when an indicator below reaches its threshold.

Early-warning indicators and escalation thresholds
Indicator to watchEscalate when
Claims open for more than 30 days without a documented reason.Escalate to the head of claims when any claim passes 30 days, and to the operations manager after 60 days.
Payments made to bank accounts that were not confirmed by a call back.Escalate to the fraud investigation lead at once, and hold the payment until it is confirmed.
Users who hold both entry and approval rights for claim payments.Escalate to the operations manager when any such user is found, and remove one right within a week.
Phishing reports or failed restore tests logged in a quarter.Escalate to the IT security manager at once, and to the board if two or more occur in the same quarter.
Returns due within 10 days with no preparer or reviewer named.Escalate to the company secretary at once, and to the operations manager if still open after 3 days.

Contingency arrangements

If a serious event occurs, such as a confirmed fraud, a data breach or a payment run that cannot be completed, the operations manager pauses related payments, preserves records and informs the head of claims and the compliance officer. The IT security manager isolates affected systems and restores data from the latest tested backup. Regulator and legal contacts are made through the company secretary as the relevant jurisdiction requires. Standby funding is confirmed with the reinsurance manager, and customers receive early and plain information about any delay.

Prioritized action plan

  1. Introduce a claims evidence checklist with dated sign-off, owner head of claims, within 45 days.
  2. Confirm bank detail changes by call back and split entry from approval of payments, owner fraud investigation lead, within 45 days.
  3. Enable multi-factor sign in and test a restore of policy and claims data, owner IT security manager, within 30 days.
  4. Review user rights and remove any combination that lets one person set up, approve and pay, owner operations manager, within 60 days.
  5. Set up a compliance calendar with a backup owner for each return, owner company secretary, within 30 days.

Conclusion

Reliable claims and records depend on a few steady habits: evidence checklists, split duties, call back checks on every change to payment details, tested backups and a calendar for each return. The highest inherent scores sit with data exposure, claims errors and fraud, and each has actions that bring the residual score down. Treat the register as a living record, review it on the stated cycle, and seek qualified clinical, legal, actuarial or tax advice for any real question on a claim, product or filing.

Assumptions and limitations

Assumptions

  • The business is licensed to write life and health cover and is supervised by a regulator, with the specific rules left unspecified here.
  • Claims staff are trained, and medical and personal data is held on managed systems with individual user accounts.
  • Reinsurance and a third party administrator support some processes, and their contracts are assumed to include service levels.
  • Product details, jurisdiction and systems are assumed for teaching only and should be replaced by the real facts in any live review.

Limitations

  • The scores are examples for learning and do not describe any real insurer, claim or regulator decision.
  • Insurance, health privacy and conduct rules differ by country and change over time, so specialist review is needed.
  • Clinical and underwriting judgments require qualified professionals, and this content does not replace them.
  • This is educational content and is not actuarial, medical, legal or financial advice.

Related frameworks to study

  • Three lines model of risk ownership
  • Hierarchy of controls
  • Internal control framework with control activities and monitoring
  • Business continuity planning cycle
  • Data protection by design principles

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For Learning Reference Only: This assessment demonstrates how risk assessment principles are applied in a practical setting, providing a useful reference for learning and understanding. Actual assessments may be adapted to suit specific site conditions and circumstances.

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