Facing up to the future-comment

The year 2013 will be another fun-packed year during which the scope of the challenges that face individual risk managers means that they will need to work increasingly together locally, regionally and on an international basis to share experience and seek solutions, or risk becoming more isolated. Perhaps more than ever before, as individual risk managers plan their year, they need to set aside some decent time to get involved with their local associations, talk to their peers and take a step back to consider the bigger picture. Through unity lies strength. Consider the fact that Ferma has found it necessary to announce its rejection of an environmental catastrophe fund that the European Commission believes may be needed.hideThe bottom line here is that the EC is obviously worried that European industry and the insurance market that supports it is not capable of rising to the threat posed by pollution and some form of government direction and action is therefore needed. This, I would suggest, is indicative of a wider trend among politicians in Europe and the US in particular (not surprisingly those regions hardest hit by the global financial crisis and economic downturn) to assume that business is unable to compete its way out of the current crisis and that it will cut important corners to survive. The natural assumption among politicians and bureaucrats is that existing legislation such as the Environmental Liability Directive (ELD), insurance and banking solvency rules and corporate governance regulations does not have sharp enough teeth and therefore needs seriously addressing. But just as tougher capital adequacy rules will not necessarily force insurers to deliver more innovative and broader insurance products, and banks to offer funding to businesses that really need it rather than those that offer the highest potential returns and therefore bonuses, a mandatory cat fund for environmental damage will not lead to better risk management of this risk. Indeed, as so often is the case with such politically inspired ideas, it would probably have the opposite effect. Less responsible companies would possibly see less point in investing in proper environmental risk management because the risk is covered if something does go wrong. Just as overly onerous capital adequacy rules may well persuade insurers to allocate capacity to high risk areas and the banks less funds to higher risk projects that would help Europe compete its way of the current malaise. The insurance market needs to get behind Ferma and work with the risk management community to explain to the Commission that it can deliver decent and affordable environmental liability coverage. The fact is that Ferma does not have a huge budget and legions of full time staff to help tackle such big efforts and neither do the national risk management associations. The insurance industry does have more budget and needs to look long and hard at how it can work more effectively with its customers to deliver a joined-up approach to such questions. As shown by Airmic’s salary and benefits survey, UK risk managers have enjoyed ‘solid if unspectacular’ pay increases over the last two years, their corporate profile has risen and there has been a general appreciation among main boards of the need for improved risk management and decent insurance coverage post-crisis. But importantly, and as strongly supported in our own Risk Frontiers annual survey of Europe’s risk managers, the Airmic survey also shows that individual risk managers have not been given loads more budget and staff to take on the wider role and bigger workload. This simply underlines the above. Risk and insurance managers will find it increasingly difficult to find the time to crawl out of their boxes and open their minds to new ideas, share experience with peers and debate and seek solutions to key issues with service providers. But precisely because they are being asked to do more with less, this is exactly what they need to do. The challenge for many risk and insurance managers in 2013 will therefore be to work out how to manage existing resources and prioritise more effectively. A lot of this will be down to communication as important elements of the risk function are delegated downwards, outwards and upwards and presumably also outside to consultants and other service providers. The need for focused and expert training in wider management skills will become more important in 2013 as risk managers juggle their limited resources to try and deal with an apparently ever broadening and widening risk landscape and set of responsibilities. I would suggest that Ferma needs to bear this in mind as it plans its certification project. One big fat reason why risk managers are being asked to do more with less is because their businesses have become more global in how and where they operate and dependent upon suppliers in a far wider array of countries than in the past. Again, Airmic’s supply chain survey confirmed exactly what we found in our annual Risk Frontiers survey: that Europe’s companies have woken up to the fact that they and their supply chains are increasingly vulnerable to man-made and natural threats around the world and need to work out solutions fast. Just as with the environmental question above there is no quick fix solution to this. Insurance is important and we at Commercial Risk Europe will continue to challenge the brokers, insurers and reinsurers to seek innovative solutions to their customers’ fast-evolving needs in key areas such as supply chain, cyber and, I would suggest, increasingly credit and political risk as emerging markets become even more important. But the bottom line is that the risk needs to be properly managed at source before new risk transfer approaches and solutions can be found. Yes, the insurers do have to be more adventurous and forward-looking. But the job has to be tackled in partnership and presents another individual management challenge in a tight budget environment. And of course such challenges cannot be tackled effectively on a national or even regional basis. These are global problems in a global business world that need a global risk management approach. The insurers and brokers have been investing for some time to spread their wings and meet the global challenge and cross-border needs of their customers. Ideally every major industrial insurer and broker would have a dedicated office in every country of the world, of course, and insurance regulators would all sign up to a global charter of standards organised by the IAIS. But in the real world this is not going to happen any time soon and so this presents a huge management challenge for the whole market as it seeks to meet the needs of companies the world over. This was why it was so positive to hear of Franck Baron’s plans to reinvigorate the Asian risk management community with the formation of a new regional association. Not only can this association work to help Asian risk managers rise to the challenges presented by the new world order, but it can also work with risk managers in other parts of the world too for a more unified, coherent and powerful response to rapidly changing economic, financial, social and political conditions. This challenge cannot be underestimated. While markets do remain fiercely local and regional, particularly in emerging parts of the world, the global rules and spread of capital that determine the future direction of global business continue to grow in influence apace. It is no coincidence that the leading insurance federations around the world have chosen this year to create a global alliance that will enable it to lobby at a global level. It matters. The risk management community needs to organise a similar global response and has the perfect vehicle in the form of the International Federation of Risk and Insurance Management Associations (Ifrima) to help coordinate a more forceful and joined up approach to the big challenges that lie ahead. This is why we at Commercial Risk Europe have taken a more global approach in recent times. We have launched International Programme News (IPN), our monthly electronic newsletter dedicated to the thorny issue of cross-border coverages worldwide, Commercial Risk Africa (CRA), our new monthly publication that is focused on the emerging risks presented by doing business in this increasingly important region, and our recent series of global reports within CRE that this year focused on sub Saharan Africa, Latin America and in this issue, the Middle East. This is also why we have just launched our Global Risk Frontiers survey project to sit alongside our European Risk Frontiers survey. We have partnered with Ifrima and leading regional risk management groups to find out exactly what matters to international risk and insurance managers the world over in key areas such as the scope and role of risk management, whether risk and insurance management should be carried out as a combined function or separately, risk education and how to work more effectively with the insurance community to deliver more lasting and enterprise-wide coverage. We hope that this project will help to mobilise a more international approach from the risk and insurance management community through Ifrima, generate a basis for active cooperation in the international community on key areas such as education and ultimately provide a strong basis for discussion and negotiation with the global insurance community, just as Risk Frontiers Europe does here in Europe. Put the third week of May in your diary as this is the week that we will hold a major event in London to present and discuss the findings of this survey. I am hugely looking forward to carrying out our two big surveys and talking to many of our readers about the big themes covered in the process in 2013. Please do continue to support these efforts as you have in the past to help us reach some challenging conclusions that can be used to foster real change. As the Airmic survey emphasised, it’s tough out there currently for all of us but we cannot let the pressure of local deadlines make us miss the bigger picture as the world rolls on. Have a great Christmas break and return with batteries recharged for another exciting year and, as ever, thanks for your support. Adrian LadburyEditorial Director—Commercial Risk Europealadbury@commercialriskeurope.com

Facing up to the future-comment

Want to read this article?

Read Next

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Want to read this article?

Read Next

Over 50% of exporters considering moving supply chains due to geopolitical risk

Quarter of public companies using GRI’s Tax Standard

New carbon capture and storage insurance product from Aon

Nordics come top in global cyber security poll

EU strengthens CO2 emission standards for heavy-duty vehicles

Related Articles