Earlier this year, the first ever pan-European research to be undertaken into the attitudes of risk managers and insurance buyers revealed the views of Euro-corporate purchasers of risk. Overall, continental European organisations have shown themselves to be more aware of the risks facing their organisation, more savvy about how to deal with them and to display more positive attitudes to managing them, than their UK counterparts.
The quantitative study, undertaken by insurance industry research consultancy, Insurance Research & Strategy (IRS, part of the FWD Group) covered six European countries - France, Germany, Spain, Italy, Belgium and the Netherlands.
It asked for the views of more than 500 individuals responsible for risk management and insurance in mid-corporate businesses (annual sales turnover of £1m to £49.9m) and large corporates (£50m+ annual sales turnover).
The study is representative of the known profile of organisations in these countries. A separate study of UK medium and large corporations, undertaken in 2002, enables comparisons to be drawn between Euro-corporates and their UK counterparts.
Decision making
That Euro-corporates are likely to be as knowledgeable about risk or even more so than their UK counterparts has shown itself in the roles of those individuals responsible for managing risk and making decisions on the purchase of insurance or other risk financing tools. Euro-corporates are more likely than, for example, their UK counterparts, to have a specialist in the area in this role. Figure 1 summarises the job title of those who responded to the survey. It clearly shows that, while financial directors are the most likely to have responsibility for risk assessment, risk management and arranging their organisation's commercial insurances, Euro-corporates are significantly more likely than their UK counterparts to have insurance managers, group or global risk managers, and legal or justice representatives.
In the UK, managing directors, financial directors and company secretaries are more likely to have the responsibility, for whom insurance will be just one of many duties.
Risks faced today
Respondents were asked unprompted which general business risks their company faced. Several strong themes emerged. The top issue is physical assets (premises/fire damage), mentioned by nearly two in five, followed by bad debts, mentioned by over one in four. Volatile geographical markets (ie political risks) were mentioned by just under a quarter. These were the top three risk exposures. Thereafter, products liability and public liability complete the top five, each mentioned by more than one in five.
Liability features in four of the top eight issues, with professional indemnity and employer's liability also mentioned.
When compared with the UK, significantly more Euro-corporates see themselves as facing these risks, as shown in Figure 2. In the UK, only employer's liability and business interruption are at similar levels, among the top 10 risks faced. Risks concerning hijack, motor, and environment/pollution are also significantly more likely to be mentioned by Euro-corporates.
Outside the top 10, areas of external risk such as crime/vandalism, competitors' actions, government policy/legislation and terrorism are significantly more likely to be mentioned as risks faced in the UK.
By country, Italy would appear to have a higher risk profile than average, whereas Germany is differentiated by significantly higher mentions of business interruption than any other country.
Attitudes to risk management
If these are the issues of concern, what are respondents' attitudes towards managing the risks?
Euro-corporates are significantly more likely than UK corporates to agree with the statement that 'the discipline of risk management is as at the heart of the business' (84% agree compared with 67% of UK corporates), with Euro-corporates almost twice as likely to 'strongly agree'. A follow-up statement supports this view, with a ratio of 5:2 in agreement that 'the trend is towards spending money managing the risk rather than paying insurance premiums to a third party'. So not only are Euro-corporates more specialised and sophisticated purchasers, they are more risk aware and have more positive attitudes towards risk management and prevention.
Figure 3 shows how attitudes to these issues vary on a country-by-country basis.
Italy again shows itself to be a less mature and less sophisticated market, where risk management and risk prevention are not at the core of the organisation.
Spain, while agreeing strongly that risk management is at the heart of the business, shows that a more traditional approach to risk finance is likely (ie reliance on insurance rather than alternatives), as the trend is more towards premiums than prevention. Belgium in particular shows positive attitudes towards spending on risk prevention while Germany has the highest rating for risk management being at the core of the business.
So, if attitudes are generally positive to risk management, what risk related activities do companies actually undertake in practical terms?
Two thirds have undertaken risk profiling, while three in five have undertaken risk mapping. Half have implemented an integrated health and safety policy, two in five have developed a formal disaster recovery plan, and a third claim to have undertaken benchmarking. Euro-corporates are more likely to have undertaken these practical risk management measures than their UK counterparts, with the exception of implementing an integrated health and safety policy, which has been done by a significantly higher proportion in the UK.
By country, there is significant variation in the percentage that has a formal disaster recovery plan. The highest incidence is in Germany, where 72% claim to have one in place, compared to an overall average of 41%. In Spain, in contrast, just 16% say they have a formalised disaster recovery plan, significantly below average. Spanish corporates are also least likely to have implemented an integrated health and safety plan, which is a concern given that they gave the second highest number of mentions to employer's liability as a risk faced today.
Risk finance
There appears to be less reliance on traditional insurance markets amongst Euro-corporates. As a result, we have concluded that European buyers are more likely to take a pragmatic, rather than enthusiastic, approach to insurance for their business.
A particularly interesting aspect of the research has been the Euro-corporate attitude to insurance alternatives. It reveals an open-minded attitude to alternative risk finance, and other alternatives such as finite risk or captives. The levels of awareness and usage are higher than in the UK.
Conclusion
The implications of the study are far-reaching. A 'one size fits all' approach is unlikely to work on a pan-European basis. Insurers dealing with Euro-corporates in the markets of France, Germany, Netherlands and Belgium will have to tailor their offering to a sophisticated purchaser.
Such purchasers may be risk professionals rather than generalists; they believe that risk prevention and advice are as important as insurance per se, and they are aware of, and are using, alternatives to insurance.
The Italian and Spanish markets are more traditional with higher dependency on insurance and less awareness of the alternatives. In Spain especially, there exists a significant opportunity to add knowledge in the area of disaster recovery planning.
Ian Winters is managing director of Insurance Research and Strategy, Tel: 07714 6002256.
