Are Your Risk Management and Insurance Strategies Aligned?
The 2014 Federation of European Risk Managers Association (FERMA) Risk Management Benchmarking Survey, to which Marsh is a key contributor, brought home several key messages. Amongst them, the strategic development of the risk management role across European organisations, but also the low level of satisfaction in terms of risk mitigation, and the gap in analytics use to support insurance purchasing decisions. Now its seventh edition, this year’s FERMA Benchmarking Survey received a record number of 850 responses from 21 European countries.
Strategic Risks Mitigation Levels
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 their mitigation. The risks respondents identified are political, including government intervention, legal and regulatory changes, compliance with regulation and legislation, competition, economic conditions, market strategy, and 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.
One of the objectives of the survey is to help FERMA target the European issues that are the most important to its members. According to the 2014 survey, these are:
- Data protection regulation (45%).
- Annual reporting and transparency (38%).
- Solvency II and captive treatment (38%).
- The possibility of mandatory EU-wide financial security (38%).
Insurance and Captives
The level of insurance buying sophistication continues to rise, the survey shows. The use of captives is continuing to grow, especially for non-traditional lines. The number of international programmes, even on less mature lines of business, is rising, and buyers are optimising their programme structures, particularly in terms of retentions and limits.
Some key insurance-related findings are:
- Of 39% of the respondents who own or use a captive, many expect to use it more over the next two years: 39% for non-traditional lines of cover and 33% for traditional lines.
- The insurance market for developing risks is still in its early stages; 72% of respondents say they have no cyber risk standalone cover; 37% do not insure gradual environmental impairment.
- 57% say the most important use of risk and insurance-related data is to optimise the insurance programme retention.
- 63% say compliance with local regulations is the overwhelming reason for using standalone local policies.
- Only 15% of respondents use enterprise risk management (ERM) tools, such as risk financing optimisation, to guide their insurance purchasing decisions.
Another significant trend which the FERMA survey reveals is that 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.
FERMA’s European Risk and Insurance Report
FERMA’s European Risk and Insurance Report 2014 is available in two parts with two objectives: an executive summary intended to help risk managers communicate risk management priorities to senior management, and a full analysis of the survey results, including country-by-country comparisons, available online, for risk managers and national associations to use for benchmarking and discussion.