European organizations need to improve management of top risks: FERMA

Surveyed risk managers in Europe report low satisfaction with the level of mitigation for six of the Top 10 risks “that keep their CEO awake at night,” note findings from a new survey released Monday by the Federation of European Risk Management Associations (FERMA).

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

Views are slightly more positive for the remainder 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,” argues Michel Dennery, FERMA vice president and a member of the survey committee.

The findings flow from the 2014 Risk Management Benchmarking Survey, conducted earlier this year by FERMA, which received a record number of 850 responses from 21 European countries. (The benchmarking survey has taken place every two years since 2002, with this being the seventh edition.)

Using the survey results, FERMA Monday published its first European Risk and Insurance Report. Findings from that report include the following:

• 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%);
• 84% of insurance risk and enterprise risk managers report to the board or top management (45% of them several times a year); and
• heads of insurance or risk management most commonly report to the 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 organizations, FERMA reports that risk management can contribute much more as its strategic role grows. “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,” says Cristina Martinez, a FERMA board member and head of the 2014 FERMA survey committee.

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

• data protection regulation – 45%;
• annual reporting and transparency – 38%;
• Solvency II and captive treatment – 38%; and
• 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 optimization to guide their insurance purchasing decisions.

FERMA points to another significant trend: 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,” Dennery cautions.