Keys to Understanding the Diversity of Risk Management in a Riskier World
This 6th Edition of the FERMA Risk Management Benchmarking Survey fits the first strategic objective of FERMA to coordinate, promote and support the development and application of Risk Management in Europe by organising surveys and benchmarks to identify and share current practices. The key findings:
- As in the 2010 and 2008 studies, business compliance and legal requirements are the main external factors triggering Risk Management within companies. However shareholders requirements are now the second.
- The impacts of the European 8th Company Law Directive are still poorly understood by a large number of Risk and Insurance Managers and poorly integrated by Executive Committees.
- Risk Managers consider Top Management and Board/ Audit Committees have more or less aligned expections and the same three main objectives regarding Risk Management:- provide a reasonable assurance that major risks are identified and managed;- minimise operational surprises and losses;- integrate the risk dimension within the decision makingprocess.
- Market competition and business/regulation are still considered as the main two risk priorities, consistent with 2010. Comparing the risk importance assessment between 2010 and 2012, we note that only reputation risk and market volatility impact are regarded as emerging topics.
- The difficult economic and financial situation has led to increased reporting to Executive/Audit Committees and to a modification of the Risk Governance/Risk Management mandate.
- Overall, the Risk Management maturity analysis reveals little progress in comparison with 2010. However, behind this general finding, a closer analysis shows that progress has been made mainly in governance area:a. The Risk Management function reports more and more to Top Management level; b. The Internal Audit function is playing an increasing role in the process of providing an independent assurance on the quality/efficiency of the Risk Management system.
- In terms of risk appetite, a closer analysis of the results shows that the declared risk appetite is mostly triggered by the risk category, rather than the risk assessment. Consequently, it appears that companies mainly adopt risk-taking strategies when it comes to external risks (competition, political, market risks, M&A), or, especially for complex companies, for planning and execution decisions.
- Finally, the survey reveals a correlation between the level of Risk Management maturity of a company and its performance, in terms of EBITDA and growth or a long term basis.
- In the current economic climate, most respondents are planning to strengthen their loss prevention activity rather than increase their use of insurance.
- Risk Professionals are looking for long term relationships with robust industry partners.
- There is a strong demand for improvement in claims efficiency.
- Where risks have been identified and mapped, it does not necessarily mean that they are adequately insured. Either the Risk Manager has made an informed “cost- benefit” decision or the coverage is not available.
- Claims trends and Solvency II are the main areas of concerns for the Risk Management community.
- The search for compliance is greatly impacting the structure of insurance programmes.