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Risk managers make their resolutions

Wed 12 Jan 2011 Share

Computer monitor Risk managers across Europe and North America resolve to raise their game in 2011

Corporate risk managers are preparing themselves for the challenges 2011 has in store. With little improvement in economic conditions and uncertainty still surrounding the financial markets, risk managers believe that their role will be more crucial than ever.

John Hurrell, chief executive of the UK risk manager association Airmic, says most of his members feel they have a higher profile going into 2011; they have more responsibility and are more engaged with their directors than ever before.

“In surveys of our members we’ve asked if they perceive more focus on risk management in their organisations,” he told lloyds.com. “A very significant majority said they expect to be doing more, albeit with the same (or less) resource than they had previously.”

Some companies are more focused than others, however, he admits. For example, those companies with known reputation and brand risk issues, or businesses that have significant capital investments at risk are on top of their exposures. Others may need to take another look at their risk profile.

“In 2011 the significant challenge for many risk managers will be the speed of change of their company’s business model,” says Hurrell. “For instance, where the supply chain has been radically changed or where the distribution model has changed to an internet model; where there’s more outsourcing, where cloud computing has replaced internal IT resources.”

Adjusting to economic conditions

Scott Clark, the newly appointed president of North America’s Risk & Insurance Management Society (RIMS), agrees: “With the continued globalisation of the economy an increasingly important emerging risk for our members is supply chain interruption. Whether it is physical inventory or human resources, the risk of interruption to business continuity is a growing concern,” Clark says. “Supply chain resilience is more than an operational risk management issue - it is a strategic risk issue and companies need to insulate their companies against a range of potential sources of interruption.”

Clark, who is also risk and benefits officer at the school board of Miami-Dade County in Florida, believes that the effect of a depressed economy on companies’ profits has broadened risk managers’ horizons. “Risk managers need to be focused on protecting shareholder value, particularly from liability and workers comp claims,” he advises.

“In addition to strategic risk management and operational risk management, RIMS members are increasingly involved in employee benefits. Health insurance costs remain an issue for employers and RIMS will help its members find ways of containing increases in health insurance premiums,” Clark promises.

Regulatory risks on the radar

Risk managers say they will be on the look out for changes to insurance regulation in 2011 in case it affects them. Jorge Luzzi, vice president of the Federation of European Risk Management Associations (Ferma), says the implementation of the Solvency 2 regime, which lays down stringent capital management rules, could shake-up the European insurance market.

“We are concerned that Solvency 2 could lead to a reduction in the available capacity of medium-sized, monoline or specialist insurers. Furthermore, Solvency 2 could lead to a concentration in the market with the loss of local insurers,” says Luzzi, who is also risk manager of Italian tyre company Pirelli. “This would be regrettable as local insurers play an important role in diversifying the insurance offering and also often have valuable local knowledge.”

Airmic’s John Hurrell says his members are concerned about the UK Government’s recently announced plans to break-up the Financial Services Authority and reallocate its responsibilities within the Bank of England.

“They are concerned that supervision could become unwieldy to the extent that it makes insurers and brokers less responsive and adds cost to the end product,” he warns. “So although regulation is primarily an insurance market issue, every time there’s been a change in market regulation it has added bureaucracy and slowed the market down.”

More innovation and dialogue

Scott Clark wants insurers and risk managers to work together to develop new coverages in the future. “There is a lot more room for increased dialogue to develop products that will better meet the needs of RIMS members,” he says. “We want to be in lockstep with insurers in identifying and developing financial products and services that will address the evolving risks RIMS members face in the strategic space. There is a lot that can be done that will be mutually beneficial.”

Ferma’s Jorge Luzzi agrees: “The insurance market is generally soft going into 2011 and there is plenty of capacity which is good news for Ferma members. We would like to see insurance companies being more creative in the coverages they offer and develop risk transfer solutions for non-traditional risks such as terrorism and business continuity, for example.”

Airmic’s John Hurrell says insurance companies are responsive to buyers’ needs. “There is abundant capacity as well as competition and there is underwriting flexibility. It is a very positive picture,” Hurrell told lloyds.com. “Most of our members recognize how fortunate we are to operate in the UK where such a high level of insurance expertise is available right on our doorstep in the shape of the London market.”