FERMA releases benchmarking survey

Risk management is developing and maturing across Europe, according to the results of a pan-European survey released by the Federation of European Risk Management Associations (FERMA) at its biennial seminar in Brussels.

Half of the organisations represented in 2008 are industry, 19% are services and 4% government and public service bodies. The companies are mainly large enterprises with international activities, very extensive for some, and 56% are listed on at least one stock exchange. The highest proportion of responses came from France (22%), the United Kingdom (17%) and the Netherlands (9%), Sweden (8%) and Germany (7%).

Key findings include:

Internal and external drivers are converging to raise the profile of risk management.

Companies develop their risk management strategies for their own benefit, to secure the fundamentals of their business models, safeguard key assets and minimise operational surprises or reduce the cost of risk. Embedded risk management gives executive teams confidence in the appropriate running of their operations, and in meeting legal and regulatory requirements.

Communicating on risk has become a core corporate skill.

The ability to present a risk management framework and practices convincingly is an increasingly powerful way to build trust and corporate credibility in the eyes of external parties, such as shareholders and other stakeholders. Credit rating agencies are now adding their weight to the list.

European companies have matured.

A vast majority has decided how to tackle risk management. Established policies, charters and defined processes are now the norm rather than the exception.

Respondents to the survey, however, admit to a potential execution gap. A much smaller proportion of companies is able to state that their risk management processes are actually embedded in operations. Many more see it as work in progress.

Exposures are continuing to evolve.

Earlier efforts are bearing fruit in a continuing reduction in operational risks. On the other hand, exposures related to the environment and sustainable development, legal risks including regulation, and commercial risks are expected to increase in importance in the next two years.

There is considerable diversity of risk management practices.

The survey identified five “families” of organisations according to their behaviours and attributes in the way they approach risk. They range from companies at the start of their engagement with risk management to sophisticated businesses that are responding in a balanced way to both regulatory and performance drivers.

Corporate buyers are not particularly concerned about increases in insurance premiums and look to their insurers for solid services.

When it comes to pricing, the consensus is that rates have stabilised for most classes of risk, and that some increases are likely in the medium term, particularly for environment-related risks, and directors’ and officers’ and other liability risks.

This is the fourth such benchmarking survey conducted by FERMA in collaboration with AXA Corporate Solutions and Ernst &Young, and it shows both an overall increase in maturity and a wide diversity in risk management practices among respondents across Europe.

Conducted independently between March and May 2008, the survey received 555 replies from more than 16 countries. It is the most representative sample of European risk management opinion so far.