Risk Management ‘Linked to Improved Corporate Performance’

Maturity of risk management processes is correlated with sustainable improvements in corporate performance, according to the 2012 Risk Management Benchmarking Survey of the Federation of European Risk Management Associations (FERMA).

The results of the survey, conducted in collaboration with AXA Corporate Solutions and Ernst & Young, were announced at the FERMA Seminar held 22-23 October in Versailles, outside Paris. This is the sixth edition of the survey, which has taken place bi-annually since 2002. The 2012 survey demonstrated that companies with the most advanced risk management showed the strongest level of growth for the past five years, as measured in terms of earnings before interest, taxes, depreciation and amortisation (EBITDA).

From a record number of 809 responses from risk and insurance managers in 20 European countries, the survey found that:

  • Twenty-eight percent of companies with advanced risk management practices reported an EBITDA growth rate of more than 10%, compared with 22% whose risk management was classed as mature, 15% for moderate and 16% for emerging.
  • Among companies with an EBITDA growth rate of more than 20%, nearly three in four (74%) have mature or advanced risk management practices.

“We have long believed that good risk management contributes to sustainable corporate growth,” said FERMA president, Jorge Luzzi. “Now we have clear evidence that there is a correlation. This is a particularly important finding in light of the pressures on corporate results during the past five years.”

Other key messages from the survey include:

  • In the current financial and economic climate, top management wants more information on the risks and risk management of the business, according to 46% of respondents. In 53% of the companies with mature or advanced risk management (2010 – 45%), the function now reports to the board, a board committee or a top executive. However, the survey found that there is considerable work to be done before companies across Europe fully understand the implications of the European 8th Company Law Directive and integrate them into their business.
  • When it comes to the insurance market in the current financial climate, European businesses say they want sustainable relationships with stable partners. They are not looking generally to increase risk transfer (17%), but they want long-term arrangements (40%) and more robust insurance partners (32%). More than half (57%) reported strengthening their loss prevention activities.
  • The respondents’ message to insurers is improve efficiency but don’t forget innovation. They want more efficiency in the claims settlement process (43%), more tailored policy wording (36%) and innovative coverage (30%). Neither more capacity (14%) nor greater geographical coverage (12%) is a high priority for respondents, which is a measure of the insurance market resilience following the catastrophe losses of 2011.

The survey took place between 20 April and 17 June 2012. It took the form of an online questionnaire which was open to members of the FERMA member associations and other approved risk and insurance managers. An independent, third party organisation managed the questionnaires and analysed the results.

There were a total of 809 replies, although not all respondents answered every question. The companies represented cover a wide range of industry sectors. Most are large or very large; 55% have an annual turnover above €2bn; 59% have more than 5,000 employees; 45% have operations in more than 20 countries and 54% are listed on at least one stock exchange.

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