According to Friedrich Neubrand of EOS Risq in Austria, the Central and Eastern European countries where risk management has seen the greatest development so far are the Czech Republic, Hungary, Poland and Slovakia.
Although there is some way to go, he believes they are catching up fast.
"Entry into the EU, the freedom of services regulations and the increased presence of international insurers, will produce a greater focus on risk management, particularly with regard to property. With a continuing lack of capacity for property lines, it will become more and more of an issue, if not a prerequisite of getting insurance coverage."
Certainly, international insurers can take some credit for the development of risk management in Poland. Rafal Rudnicki, risk manager, Raben group, explains. "Before World War II there were about 100 insurance companies in Poland. However these were lost during the communist regime, and it is only in the last 15 years or so that we have been able to enjoy a true insurance market. Before that there were just two state-owned insurance companies, no brokers and no real, independent, loss adjusters. As a result, there was practically no business risk management thinking.
"However, when top European and world underwriters began to settle in Poland around 15 years ago, they began to bring a risk management culture to the market. Nonetheless, risk management initiatives have so far been virtually limited to a few top underwriters and brokers and a very small number of commercial insurance buyers - mainly multinational, corporate industries that opened up in Poland. As far as risk management in the non-insurance sector is concerned, we are at the very beginning of the development."
On the question of how far corporate governance has had an impact on Polish companies, Rudnicki believes that there is an awareness of corporate governance issues, but it is mainly confined to international companies that have their operations in Poland. However, he notes that more and more Polish companies are becoming quite advanced in such issues, although he points out that Polish business does not yet face the legislative pressure that prevails in countries like the UK.
He sees the main obstacle to risk management as the fact that the concept is largely unknown in the average Polish company, "perhaps with exception of companies producing and distributing energy."
With the concept of risk management being very new for Polish businesses, the function of risk manager is not yet an established one. "It can often be confused with the health and safety officer, security officer, or mostly with a banking analyst reviewing credit applications," says Rudnicki.
He reports to the CFO of the group and thinks that this is possibly the typical reporting line for risk managers in Poland. "At the present time, the number of risk managers in Poland is so low that it is hard to tell what background would be preferred by a Polish organisation employing its own risk manager, although an insurance background is the easiest to fulfil and start with."
While each business will naturally have its own inherent risks, Rudnicki suggests that there are some common external risks for organisations operating in Poland. These include:
- not being able to handle the threats generated by joining EU, and not being able to effectively use the opportunities it brings
- frequent legislative changes
- political uncertainty
- technological development (including IT malfunctions and internet crime)
- changing market and clients' preferences
- terrorism
He stresses that running a business in Poland demands a watchful and proactive management. "A drifting approach will result in the company ending up at the bottom of the market. It is not that the Polish environment is business-hostile. On the contrary, if you wait until your competitors grab all the opportunities, there may be none left for your business.
An opportunity that has been used by a competitor becomes a threat - both in the context of joining the EU, as well as legal, technological and market changes.
Looking to the future, Rudnicki believes that insurance will inevitably become more expensive in Poland. "Therefore 'insure it all' tactics, combined with zero prevention costs will have to be replaced with more sober and cost effective solutions. This is where risk management fits perfectly. I therefore expect a growth of risk management in Poland."
And he considers that his western counterparts can contribute to this growth. "With our know-how on business risk management being so limited, there is a huge gap that could be filled by European risk management leaders and organisations. Education, networking and good practice - those are the key issues for today."
Pavel Nepala of Czech brokers Renomia, part of the Worldwide Broker Network, says that risk management in the Czech Republic is still at an early stage and has even further to catch up in Slovakia, the other country where Renomia operates. However, incidents like severe flooding have drawn attention to the need for good protection.
"We are also seeing more companies seeking to manage their liability risks, as, with entry into the EU, they are looking to export more," explains Nepala. "Another area that is growing in importance is the prevention of business interruption. And in the long term, there will be greater interest in risk management in respect of employees because of the effects of new laws, and also in preventing pollution liabilities."
Nepala says that, so far, few Czech companies employ a risk manager, another situation that can be expected to change in the future. Neubrand also highlights a distinction in the region between indigenous locally-owned organisations and those that have direct foreign investment. "The former rarely have a risk manager; in most cases the chief financial officer deals with insurance. In the case of the latter, one is very often dealing with an overseas risk manager who is well aware of the issues."
Like Nepala, he sees liability coverage and associated risk management as set to develop. "Domestic companies often don't buy liability insurance or, if they do buy it, the limits are far too low. The reason is that, in the past, claims were very rare. However, things are changing. There is now an increasing awareness that companies are getting sued, so liability insurance is likely to be a growth area."
Widening interest
The recent announcement by the Federation of European Risk Management Associations (FERMA) that it has expanded its membership to include, among others, the Russian risk management association RusRisk and individuals from Poland and the Czech Republic, highlights the growing interest in risk management in this region.
As FERMA president, Thierry van Santen, says: "It is the role of FERMA to help our members find their way through benchmarking, networking, information gathering and, obviously, through the European standards."
Van Santen has pledged that FERMA will help countries who wish to form their own risk management association and is encouraging insurers to sponsor their local clients to allow them to attend the FERMA biennial conference in October 2005.
Risk managers in these countries may also benefit eventually from the training course now being developed by a partnership of European associations and educational establishments. Known informally as the 'Leonardo Project', the project aims to expand knowledge of risk management, particularly in those smaller organisations that may not have an in-house risk manager.
AIRMIC executive director David Gamble says that although the initial focus will be on Belgium France, Germany, Italy and the UK, the project will be eventually rolled out across the rest of Europe. The course will use the risk management standard developed by AIRMIC, ALARM and the Institute of Risk Management. This standard has already been translated into Polish, and a Czech version is being prepared.
Neubrand concludes that the Czech Republic, Hungary, Poland and Slovakia should have reached a level of insurance quality and risk management comparable to Western Europe by 2010.
