From Organizational Purpose to Performance
An insurer can meet a quarterly growth target and still be pursuing the wrong strategy. Growth that strains claims service, weakens underwriting discipline, or conflicts with the organization’s values may undermine its long-term purpose. The COSO ERM strategy and performance model helps make these connections visible: it links an organization’s mission, vision, and core values with strategy, objectives, performance, review, and information.
The model is not simply a checklist in which each item is completed once. It is a connected way to consider how strategic choices affect risk, how performance is evaluated in light of those choices, and when new information should lead to reconsideration. This tutorial focuses on that connection rather than on the framework’s full set of components and principles.
These terms are related but not interchangeable. A mission such as “provide dependable financial protection” is not itself a measurable annual objective. A vision such as “be a preferred regional small-business insurer” describes an aspiration, not the actions required to reach it. A strategy might involve expanding selected commercial products through independent agents, while objectives specify results such as growth in targeted regions, service standards, and underwriting performance.
The connections matter because a strategy creates both opportunities and uncertainty. Expanding a product may support the vision, but it can also create exposure to unfamiliar claims patterns or operational demands. Objectives make the intended outcomes concrete; performance information helps management judge whether the organization is achieving them in a manner consistent with its purpose and values.
How the Model Connects the Decisions
The model begins with organizational purpose and context. Management considers what the organization is trying to accomplish, the environment in which it operates, and the expectations of important stakeholders. It then considers strategic alternatives and the risks associated with each. A selected strategy is translated into business objectives at relevant organizational levels.
Performance is assessed against those objectives. That assessment should include more than a favorable or unfavorable result: decision-makers need to understand the risks that affected performance, the causes of deviations, and whether the risk profile is consistent with the chosen direction. Review and revision address whether changes in performance or circumstances call for a change in the strategy, objectives, or response. Information, communication, and reporting support these decisions by getting relevant, reliable information to the people who need it.
Use mission, vision, core values, and relevant internal and external conditions to frame what the organization is seeking to achieve.
Evaluate strategic alternatives and the uncertainty they introduce, then translate the selected direction into objectives that can guide decisions.
Compare results with objectives and consider the risk information needed to interpret those results.
Use performance and changes in circumstances to decide whether adjustments are needed, and report material information to relevant decision-makers.
This sequence is a useful way to organize thought, but it should not be mistaken for a one-way process. New information can prompt a review of assumptions or strategic choices. Likewise, setting objectives may reveal that an attractive strategy cannot be pursued consistently with the organization’s stated values or practical capabilities.
Worked Applications to a Hypothetical Insurer
Worked Example: Connecting Purpose to a Growth Objective
A hypothetical mutual insurer has a mission of providing dependable protection to local businesses. Its vision is to become a preferred insurer for small contractors in three neighboring states. Its stated values include fair claims treatment and prudent underwriting. Management is considering a strategy to enter those states over two years. In the first year, it plans to write 600 policies. A proposed objective is to achieve that policy count while keeping at least 90% of sampled files within the insurer’s underwriting standards. Determine whether the objective reflects the model’s connections and identify a useful performance interpretation.
Assumptions. All figures are hypothetical, deterministic planning figures. No interest rate, mortality assumption, or probability distribution is used. The objective’s two thresholds are policy count and underwriting-file compliance.
Step 1: Check the connection to purpose. Small-contractor coverage in the named states directly supports the stated vision. Providing dependable protection is consistent with the mission, provided that the proposed growth does not erode service or underwriting quality.
Step 2: Check whether the strategy is reflected. The strategy is geographic expansion through contractor coverage. The objective of writing 600 policies measures implementation of that direction. The 90% file-compliance threshold adds a measure related to the value of prudent underwriting.
Step 3: Interpret the measures together. Suppose the insurer writes 630 policies and audits 100 files, of which 92 meet its standards. The policy result exceeds its target by \(630-600=30\) policies. The compliance rate is \(92/100=0.92\), or 92%, which exceeds the 90% threshold by 2 percentage points.
Conclusion. Both stated thresholds are met, but that result does not by itself establish that the expansion is sustainable or that fair claims treatment is being maintained. Management should interpret these measures alongside relevant service and claims information before concluding that performance is consistent with the mission and values.
Method and common mistake avoided. Trace each objective back to the chosen strategy and stated purpose, then evaluate each measure against its own threshold. A common mistake is to treat the 630 policies as proof of success by itself. That ignores the quality condition and assumes that volume alone captures the intended result.
Worked Example: Interpreting Performance Against Multiple Objectives
A hypothetical regional insurer’s strategy is to grow small-commercial business without compromising policyholder service. For a quarter, management sets objectives of at least 200 new policies, a claims-service target of at least 80% of first communications sent within two business days, and an underwriting audit target of at least 95% compliant files. The quarter produces 224 new policies, 73 timely first communications out of 90, and 47 compliant files out of 50. Assess the results.
Assumptions. All amounts and counts are hypothetical. The observations are treated as the complete quarterly results for this exercise; no interest, mortality, or probability distribution is assumed.
Step 1: Evaluate growth. The insurer wrote \(224-200=24\) more policies than the minimum objective. Relative to the target, the excess is \(24/200=0.12\), or 12%.
Step 2: Evaluate timely communications. The observed proportion is \(73/90=0.8111\), or 81.11% to two decimal places. This exceeds the 80% target by approximately 1.11 percentage points.
Step 3: Evaluate underwriting compliance. The compliance rate is \(47/50=0.94\), or 94%. This is 1 percentage point below the 95% target.
Step 4: Interpret the combined result. Growth and the service indicator meet their thresholds, while the audit indicator misses its threshold. Because the strategy explicitly pairs growth with maintaining service and underwriting discipline, management should not summarize the quarter as an unqualified success. It should investigate the audit shortfall and decide whether corrective action or closer monitoring is needed.
Method and common mistake avoided. Calculate each rate using its own denominator, compare it with its own objective, and interpret the set of results together. The common error is to add 73, 47, and 224 as though they were comparable successes, or to let strong growth hide a missed underwriting objective.
Worked Example: Using New Information to Trigger Review
A hypothetical insurer has a strategy of entering two new counties with a niche property product. Its annual objective is 400 policies, with at least 90% of applications processed within five business days. At the end of the second quarter, it has written 210 policies. Of 120 applications reviewed, 102 met the processing standard. A new building-code requirement is then announced in one of the counties. Explain what the results show and how the model should guide the next management discussion.
Assumptions. The figures are hypothetical, and policy counts are accumulated year-to-date. No interest, mortality, or probability distribution is assumed. The building-code announcement is a change in the operating context, not a numerical loss estimate.
Step 1: Compare policy volume with a simple midpoint reference. Half of the annual objective is \(400/2=200\) policies. The actual count is 210, which is \(210-200=10\) above that reference. This comparison is descriptive; it does not prove that the annual objective will be met.
Step 2: Calculate application timeliness. The observed rate is \(102/120=0.85\), or 85%. It is \(90\%-85\%=5\) percentage points below the objective.
Step 3: Separate performance evidence from new context. The policy count is slightly ahead of a straight-line midpoint reference, while the processing indicator is below target. The new code requirement may affect product design, application review, or the suitability of the original expansion plan. The announcement is a reason to investigate; without additional data, it is not possible to quantify its effect.
Step 4: Identify the review and communication needs. Management should examine why applications are delayed, assess what the code change means for the product and county, and communicate the implications to decision-makers responsible for the strategy and operations. It can then determine whether objectives, processes, or the strategic approach need revision.
Method and common mistake avoided. Distinguish measured results from emerging information, and use both to frame review. A common error is to project 210 policies at midyear into a guaranteed annual result, or to assume the new requirement has a known financial impact before assessing it.
Why the Connections Matter
The model helps prevent a gap between what an organization says it values and what its decisions reward. If an insurer’s strategy is to grow responsibly, but its objectives reward only premium volume, managers may face pressure to accept business that is inconsistent with the intended direction. Objectives and performance information should make important trade-offs visible rather than conceal them behind a single headline result.
The model also clarifies why information and communication are part of the management logic, not merely an end-of-period reporting task. A measure is useful when it is sufficiently clear, timely, and relevant for the decision being made. A board or senior management team may need a concise view of whether objectives are being achieved and what changes could affect the strategy. Operating managers may need more detailed information about the causes of delays or exceptions. Reporting should support appropriate decisions at each level.
Review and revision do not mean that every unfavorable result requires abandoning a strategy. A missed target may reflect temporary execution problems, an unrealistic objective, a changed environment, or a mismatch between strategy and organizational capability. The purpose of review is to assess the evidence and decide what response is warranted, rather than to react mechanically to a single number.
Deriving the Performance Comparison
A basic threshold comparison can be expressed as the difference between an observed measure and its objective. For a measure where higher values are preferred, define the variance as observed performance minus the target. This arithmetic does not determine whether the strategy is sound; it provides a consistent starting point for interpretation.
For a rate objective, the observed rate must first be calculated using the relevant denominator. In the second worked example, the timely-communication rate is \(73/90\), not \(73/200\), because 90 is the number of communications assessed. The variance from the 80% target is approximately \(81.11\%-80\%=1.11\) percentage points. This comparison is informative because both quantities use the same definition and scale.
The justification is straightforward: subtracting the target from an observed value expresses how far performance lies above or below the stated objective, provided the two values measure the same quantity over the same period and population. If those conditions do not hold—for example, if a quarterly result is compared with an annual target without an appropriate interpretation—the subtraction can mislead. Even when the comparison is valid, it describes performance against an objective, not the causes of performance or the adequacy of risk management.
Common Exam Trap: Treating a Target as the Whole Strategy
Suppose an insurer has a target of 500 new policies and writes 540. A weak conclusion is: “The strategy succeeded because 540 exceeds 500.” That conclusion uses only the volume target and ignores whether the policies fit the intended market, whether service standards were maintained, and whether the target remains appropriate given new conditions.
The corrected interpretation is: “Policy volume exceeded its target by \(540-500=40\) policies. This is evidence that the volume objective was met, but the broader strategic assessment also requires relevant information about the other intended outcomes and the risks associated with the growth.” The calculation is not wrong; treating it as a complete evaluation is.
A related trap is to treat review as automatic strategy reversal. A shortfall calls for analysis, not an unexamined conclusion. The model connects results and new information to a reasoned review of objectives and strategic choices.
Check Your Understanding
For each scenario, trace the evidence to the objective and identify what can and cannot be concluded.
- A hypothetical insurer’s vision is to be a trusted provider of farm coverage. Its strategy is to expand in two rural regions, and its annual objective is 300 policies with at least 92% of audited files meeting underwriting standards. It writes 315 policies; 46 of 50 audited files meet the standard. Calculate the audit rate and state which thresholds are met. (Answer: Audit rate is 92%; both the 300-policy and 92% compliance thresholds are met.)
- A hypothetical insurer targets 85% of calls answered within 30 seconds. It answers 204 of 240 calls within that time and writes 180 policies against a target of 170. Calculate the service rate and interpret both indicators. (Answer: Service rate is 85%; both the service and policy-count targets are met, but that alone does not establish overall strategic success.)
- A hypothetical insurer has a quarterly claims-resolution objective of 70% within 20 days. It resolves 126 of 180 claims within 20 days. Calculate the rate and its difference from target in percentage points. (Answer: 70%; the difference is 0 percentage points, so the objective is met exactly.)
- A hypothetical insurer aims for 400 new policies annually. At midyear it has 190 policies. A manager states that the annual objective has already failed because the count is below 200. Explain the error and give the appropriate comparison. (Answer: The 200-policy midpoint is only a straight-line reference, not the annual objective; the count is 10 below that reference, but the year-end result cannot yet be determined.)
- A hypothetical insurer exceeds its growth target, but a new regulation changes the information required with each application. State two steps consistent with the model before deciding whether the strategy should change. (Answer: Assess how the regulation affects the strategy and operating process, and communicate the relevant findings for review; do not infer an impact or reverse the strategy without evaluating evidence.)