Risk management is developing into a strategic function within European organisations. At the same time, risk management can contribute much more as its strategic role grows. Currently, risk managers are not satisfied with the level of mitigation for six of the top 10 risks “that keep their CEO awake at night”.
These are key findings from the 2014 Risk Management Benchmarking Survey conducted earlier this year by the Federation of European Risk Management Associations (FERMA). Now its 7th edition, the FERMA Benchmarking Survey this year received a record number of 850 responses from 21 European countries.
Using the results of the survey, FERMA today publishes its first European Risk and Insurance Report, at the FERMA Seminar in Brussels. FERMA President Julia Graham says, “FERMA has said that risk managers are becoming risk leaders – the European Risk and Insurance Report provides evidence to support that view. It, therefore, also endorses FERMA’s objective to shape and support risk management as a profession.”
The head of the 2014 FERMA survey committee, board member Cristina Martinez, says, “The FERMA team was inspired by higher expectations for this edition, which has been essential to putting our energy into providing more pragmatic conclusions. We cover the issues that risk managers told us they want to know, and we want the results to help us raise the standards by which we, as risk managers, judge ourselves. We can use this survey to learn how others perform and then talk to our CEOs about how to grow from key differences.”
Findings
FERMA’s European Risk and Insurance Report shows that many insurance risk and enterprise risk managers are close to the decision-making heart of their organisations. Eighty-four (84%) of insurance risk and enterprise risk managers report to the board or top management; nearly half of them (45%) several times a year.
Heads of insurance or risk management most commonly report to: the CFO (33% for insurance and 24% risk), to the CEO (12% and 17%) and to the board (12% and 18%). Many respondents have regular, close collaboration with other functions. Risk managers are involved in discussions on: ethics, compliance and legal issues (57%); internal audit and control (55%); mergers and acquisitions (52%), and strategic business planning (35%).
Respondents were asked to name the top 10 risks that “keep the CEO awake at night” and how well they were mitigated. For six of the ten top risks, they report a low level of satisfaction with the mitigation. These risks are: political: government intervention, legal and regulatory changes; compliance with regulation and legislation; competition; economic conditions; market strategy and human resources. For reputation and brand; planning and execution of strategy and debt/cash flow, there is a medium level of satisfaction with the mitigation. Only for quality issues, such as design, safety and liability of products and services, is it high.
FERMA Vice President Michel Dennery, a member of the survey committee, comments, “As we can see from the report, political actions such as government intervention and regulation have grown in importance, while confidence in the level of mitigation is low. In a flat economic environment, the risk management profession and those that it calls upon for support, including FERMA and our industry partners, must help to raise the level of innovation in the solutions available for managing risk, insurance and other means of risk financing.”
Who are the insurance and risk managers?
The report reveals that the typical risk and insurance manager in Europe is male, aged between 45 and 55 and earns between €100 000 and €120 000 a year. He works at the head office of a very large company based in a European country. He has been in his role for between three and 10 years but he has been in the sector for more than 10 years. He probably has a specific qualification in insurance or risk management.
For the first time, the report reveals the gender of respondents. It shows a split of 73% male and 27% female. Julia Graham, who has made increasing diversity in the profession one of the goals of her term, comments, “Industry could do better and there is certainly room for improvement. The results endorse FERMA’s focus on improving gender diversity in our profession.”
European issues
One of the objectives of the survey is to help FERMA target the European issues which are of most importance for its members. In 2014 these are:
1. Data protection regulation (45%)
2. Annual reporting and transparency (38%)
3. Solvency II and captive treatment (38%)
4. The possibility of mandatory EU-wide financial security (38%)
Insurance and captives
The level of insurance buying sophistication continues to rise, the report shows. The use of captives is continuing to grow, especially for non-traditional lines. The number of international programmes, even on less mature lines of business, is rising, and buyers are optimising their programme structures, particularly in terms of retentions and limits.
Some key insurance-related findings are:
• Of 39% of the respondents who own or use a captive, many expect to use it more over the next two years: 39% for non-traditional lines of cover and 33% for traditional lines.
• The insurance market for developing risks is still in its early stages; 72% of respondents say they have no cyber risk standalone cover; 37% do not insure gradual environmental impairment.
• 57% say the most important use of risk and insurance related data is to optimise the insurance programme retention.
• 63% say compliance with local regulations is the overwhelming reason for using standalone local policies;
• Only 15% of respondents use enterprise risk management (ERM) tools such as risk financing optimisation to guide their insurance purchasing decisions.
Another significant trend which the FERMA report reveals is that insurance buying behaviours in Europe tend to depend on budget restraints and rules of thumb. “While tried and tested by many risk managers, this way of thinking could pose significant problems for the management of emerging risks such as cyber and environmental liabilities,” says Michel Dennery.
