Risk managers are not satisfied with the level of mitigation for six of the top 10 risks “that keep their CEO awake at night,” which is one of the key findings of the 2014 Risk Management Benchmarking Survey conducted by the Federation of European Risk Management Associations (FERMA).

The survey respondents also revealed that risk management is developing into a strategic function within European organizations and the survey also predicted that risk management will be able to contribute much more as its strategic role grows.

Now its 7th edition, the FERMA Benchmarking Survey this year received a record number of 850 responses from 21 European countries.

“FERMA has said that risk managers are becoming risk leaders; the European Risk and Insurance Report provides evidence to support that view,” according to FERMA President Julia Graham. “It, therefore, also endorses FERMA’s objective to shape and support risk management as a profession.”

Survey 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 organizations. Eighty-four percent of insurance risk and enterprise risk managers report to the board or top management; nearly half of them – 45 percent – several times a year.

Heads of insurance or risk management most commonly report to: the CFO (33 percent for insurance and 24 percent for risk), to the CEO (12 percent and 17 percent) and to the board (12 percent and 18 percent).

Many respondents have regular, close collaboration with other functions. For example, risk managers are involved in discussions on: ethics, compliance and legal issues (57 percent); internal audit and control (55 percent); mergers and acquisitions (52 percent), and strategic business planning (35 percent).

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 10 top risks, they report a low level of satisfaction with mitigation of the following risks:

• Political: government intervention, legal and regulatory changes
• Compliance with regulation and legislation
• Competition
• Economic conditions
• Market strategy
• 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.

“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,” said FERMA Vice President Michel Dennery, a member of the survey committee. “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.”

Risk Manager Profile

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 percent male and 27 percent 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 that are of most importance for its members. In 2014 these are:

1. Data protection regulation (45 percent)
2. Annual reporting and transparency (38 percent)
3. Solvency II and captive treatment (38 percent)
4. The possibility of mandatory EU-wide financial security (38 percent)

Insurance and Captives

The level of insurance buying sophistication continues to rise, the report said, pointing to the use of captives, which continues to grow, especially for non-traditional lines. The number of international programs, even on less mature lines of business, is rising, and buyers are optimizing their program structures, particularly in terms of retentions and limits.

Some key insurance-related findings are:

• Of 39 percent of the respondents who own or use a captive, many expect to use it more over the next two years; (39 percent for non-traditional lines of cover and 33 percent for traditional lines).
• The insurance market for developing risks is still in its early stages; (72 percent of respondents say they have no cyber risk standalone cover, while 37 percent do not insure gradual environmental impairment).
• 57 percent say the most important use of risk and insurance related data is to optimize the insurance program retention.
• 63 percent say compliance with local regulations is the overwhelming reason for using standalone local policies.
• Only 15 percent of respondents use enterprise risk management (ERM) tools such as risk financing optimization to guide their insurance purchasing decisions.

Another significant trend revealed by the FERMA report is that insurance buying behaviors 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,” said Dennery.

*This story ran in our sister publication Insurance Journal.