Latin American risk managers must seize the day

The role of risks managers has evolved in recent years in Latin America, although in many cases they still have little contact with the higher echelons of their companies.

Participants in the Global Risk Frontiers Latin American survey also stressed that, to a large extent, it is up to risk managers themselves to raise their game and make their work better known within their companies.

“Sometimes people talk about the department that buys insurance as insurance buyers and nothing else. That is a perception that needs to be changed,” Luiz Otávio Artilheiro, the president of ABGR, Brazil’s risk management association, told Commercial Risk.

“Risk managers must not accept that they will be only in charge of buying insurance. They have to talk to the other departments, to the owners of the risks, otherwise they will be isolated in their companies,” he added.

“Risk managers often do not have the visibility that they should have. They only show up when there is a loss, a high-value claim, or when it is necessary to place a large risk. In the day-to-day of their companies, visibility is too low, and it should be higher,” he continued.

“The risk manager function has evolved in Brazil, and the pandemic has contributed to it. But we still have a tough road ahead. Many companies still see us as buyers of insurance policies, and not as risk managers in its most comprehensive sense,” agreed Livia Mello, risk manager at Eletrobras CGT Eletrosul, the electricity group.

Haroldo Alves de Araújo, the risks and insurance analyst at energy group Cemig and the charman of the board at ABGR, believes this situation is gradually changing, but a new mentality must take hold at Brazilian companies in order to accelerate the process.

“Since the pandemic, companies have become more exposed to some risks that were not so relevant before. Awareness about risk management is on the rise as a result,” he said. “At some point, insurance can no longer be seen as an expense. It is in fact an investment that will save the company from bigger problems in the future. It involves much more than the insurance contract alone.”

“It is still unusual to see insurance directors at Brazilian companies. The person in charge of insurance will usually work under the financial, treasury or procurement directors. There should be insurance directors, though. It should be like with ESG. We already see companies where a director is in charge exclusively of ESG issues,” said Wilnner Eduardo Silva, global treasury and insurance manager at Iochpe-Maxion, the machinery group, and the CFO of ABGR.

In his view, the process remains driven by situations where big claims highlight the importance of risk management to companies’ balance sheets.

“There has been an evolution of the risk manager role. It is becoming more strategic, but it is something that is happening especially among companies that suffer a big loss. I believe that it should be a more dynamic process and that risk management should be more firmly placed on the agenda,” Silva said.

“The distant relationship with boards remains. In fact, in many companies, the purchase of insurance is still part of the procurement department. Risk managers are very far away from decision making as a result. Insurance is often seen as a commodity, no attention is paid to the quality of the covers,” he added.

But Mellina Senra, a coordinator of ABGR’s electricity sector committee, remarked that there has been an acceleration of the process with the proliferation of risk events that took place in recent years.

“Companies are now more concerned about risk management, and not only about buying insurance. During the pandemic, we put in practice contingency plans that we had been talking about for a while, and it was a shot in the arm of our organisations,” she said. “As a result, there has been much movement in the market. More companies want to hire risk managers, there have been changes in the insurance sector and educational initiatives about insurance. One of the lessons of the pandemic was that companies need to look at their own risks.”

“Risk managers were also placed outside their comfort zones,” she continued. “There have been more demands for consultation, they have had to answer strategic questions about specific issues. It has become clear that risk managers need to get up to date with the market.”

“When I started as a risk manager eight years ago, risk managers faced a ceiling in their companies. They could at best reach management level. But now companies are giving much more visibility to the function. In some cases the risk manager is already a director, and in others even a vice-president,” said Thiago Amorim, head of procurement and risk manager at tech firm iFood and the secretary general at ABGR.

“In the past, once risk managers reached a certain level at companies, they ended up moving on to work for a broker or an insurer. Or they would jump to another company in order to earn higher salaries. Now risk managers can develop longer careers within the company,” he pointed out.

“More companies are picking people with a corporate vision to work in the insurance department. By doing this, they bring a new breath of air into the function. In the past, they would have fished someone from a broker, and as a result there was no new thinking about it.”

This scenario is unlikely to move backwards as systemic risks such as climate change, a big issue in Latin American markets and especially in Brazil, continue to spook the c-suite.

“It is very important that risk managers be involved with ESG. ESG is about much more than risks, but it is impacted by climate risks, environmental risks, even operational risks. We must provide input about all this,” said Mello of Eletrobras CGT Eletrosul.

“In many companies, corporate risk management and insurance management are different functions. Those who deal with corporate risks also work with ESG, compliance and so forth. In some companies, the communication between those two departments works very well. In others, it still needs to be better structured,” Mello says.

“In companies where the communication between the two departments is not good, corporate risk management ends up taking control of the ESG discussion, sometimes forgetting that there are insurance covers that can help with it,” she added.

Leonardo de Castro Beto, the risk manager at energy firm Energisa and director and vice-president at ABGR, urges risk managers to bang the drum about the importance of their work and make themselves known to their bosses.

“Our challenge is to create a risk culture in our organisations. We need to have visibility, but not only when there is a loss and a claim needs to be settled. Risk management must be a strategic area in the organisation, as we transfer the risks that can really have an impact on the company’s balance sheet,” he said.

“In part, this situation is on us. Risk managers tend to have a problem-solving profile, and it is sometimes hard to make the case for spending on risk transfer because companies are increasingly trying to control their expenses. We go out and solve problems rather than insisting on a more adequate budget. We need to get out of this silo and be more participative, to enter the agenda of the CFO and stress the importance of what we do,” Beto argued.

At the same time, risk managers need to stay on top of developments in the corporate world that have an impact on their daily jobs, Amorim noted.

“Since the pandemic, the insurance market has looked more closely to the digital transformation of processes, and I have noticed that risk managers, no matter the size of their companies, need to have a better understanding of technology too,” he said.

The focus of entities such as ABGR is to help risk managers to keep making inroads in their companies as they adapt themselves to a fast-changing risk environment.

“One of our priorities is to insist that risk managers are ever more important to companies. We saw areas such as compliance and governance grow in our companies. They are also involved with the management of risks,” concluded ABGR president Artilheiro, who is also the head of corporate finances at Eletronuclear, the nuclear energy company.