European Companies ‘Should Improve Management of Top Risks’: FERMA

European risk managers are generally dissatisfied with the level of mitigation for six of the ‘top 10’ risks that keep their chief executives (CEOs) awake at night, according to a survey released by the Federation of European Risk Management Associations (FERMA).

The six risks identified are political – government intervention, legal and regulatory changes; compliance with regulation and legislation; competition; economic conditions; market strategy; and human resources, said FERMA, which brings together 22 national risk management associations in 20 European countries.

Views were slightly more positive for the other four risks in the top 10. There is a medium level of satisfaction with the mitigation for reputation and brand, planning and execution of strategy, and debt/cash flow, while there is high satisfaction with the mitigation for quality issues, such as design, safety and liability of products and services.

“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,” said Michel Dennery, FERMA vice president and a member of the survey committee.

The findings were reported in the ‘2014 Risk Management Benchmarking Survey’, conducted earlier this year by FERMA, which received a record number of 850 responses from 21 European countries, a biannual survey conducted since 2002 of which this is the seventh edition.

Using the survey results, FERMA Monday published its first ‘European Risk and Insurance Report’, which included the following findings:

  • Risk managers are involved in discussions on ethics, compliance and legal issues (57%), internal audit and control (55%), mergers and acquisitions (M&As) (52%), and strategic business planning (35%).
  • Eighty-four per cent of insurance risk and enterprise risk managers report to the board or top management; 45% of them several times a year.
  • Heads of insurance or risk management most commonly report to the chief financial officer (CFO) – 33% for insurance; 24% for risk, the CEO (12% and 17%, respectively) and the board (12% and 18%, respectively).

Although risk management is developing into a strategic function within European organisations, FERMA reports that risk management can contribute much more as its strategic role grows.

Issues of most important to FERMA members in 2014 are as follows:

  •  Data protection regulation: 45%.
  •  Annual reporting and transparency: 38%.
  •  Europe’s Solvency II regime and the treatment of captive insurers: 38%.
  •  The possibility of mandatory EU-wide financial security: 38%.

Despite these issues of concern, 72% of respondents report they have no cyber risk standalone cover; 37% do not insure gradual environmental impairment; and only 15% of respondents use enterprise risk management (ERM) tools such as risk financing optimisation to guide their insurance purchasing decisions.

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