Future perfect?

This is something that risk and insurance managers have been trying to achieve for the last 20 years or so that I have been covering this market and while AMRAE has been holding its annual Rencontres. But it was made equally clear during the latest AMRAE conference and debate that this opportunity carries many dangers too and it will be no easy task for the profession to take full advantage of these market conditions. A panel of leading risk managers from across the continent discussed the development of the profession over the last two decades and asked: ‘What next?’hideIt seems that most are agreed that the key challenge facing Europe’s risk and insurance managers is to ensure that this recent interest shown in risk management is no passing fad that evaporates when, and if, the European economy picks up and CEOs and CFOs start focusing on growth again. During the AMRAE debate, hosted by myself, the risk managers rightly urged their fellow professionals to ensure that the risk management gospel is spread throughout organisations and that the job appears attractive to the next generation of young and talented professionals. Only by doing this will concrete and lasting progress be made. During the discussion, participants discussed the level of engagement that boards could and should have with the management of risk and highlighted the skills that are demanded of risk managers today. It was agreed that these skills must extend beyond expertise in insurance and basic loss prevention to include the ability to communicate and negotiate effectively. These are very basic skills that, it has to be said, risk managers are not renowned for possessing in abundance. Yes, most are skilled negotiators when it comes to arguing the toss with insurers over the cost and breadth of insurance programmes, particularly if they previously worked at a broker or insurance company. But to really spread the gospel of risk management, and even enterprise risk management, clearly risk managers need a much broader range of communication and negotiation skills. Maurizio Micale, Corporate Risk Management and Insurance Director at ST Microelectronics, has recently had his role expanded to design and implement an enterprise risk management system at his company and thus perhaps represent the coming breed of insurance managers turned enterprise risk managers. But Mr Micale does not underestimate the scale of the challenge that he and his peers face. During the debate, he warned that on the whole, directors are not ahead of the risk curve. “I believe that today, European boards of directors are more reactive than proactive towards risks,” he said. According to the Italian, who is based in Switzerland and works for a French company, to some extent this can be explained by a historic tradition of risk aversion within mainland European organisations, perhaps more so than in the Anglo-Saxon business world. “European companies have much less risk appetite than companies in the United States,” Mr Micale said. “But I am not really sure that boards have a real awareness about risk appetite. They are more about asking risk managers to sort out risks and telling them where their companies could have problems,” he added. But this does not mean that the role of risk manager has not evolved already in Europe and is linked to the evolution of the insurance market, as the leading industrial carriers and brokers seek to position themselves as more than simple brokers of capacity and more as providers of whole risk services, he said. Mr Micale argued that the very nature of the insurance market has changed from a commodity-based approach towards more risk-centred offerings. So companies have an incentive not to see insurance as the answer to all risks, but as one solution amongst many, he said. And, the risk manager believes that partly because of this evolution, future generations of board members will be much more aware about the need for defining their risk appetite and acting upon it. Risk management was effectively exported to Europe from the US about 20 years ago and AMRAE’s President Gilbert Canameras said that it is worth bearing in mind that its evolution in the ‘old world’ has been recent and very quick. Mr Canameras said that one pleasing and positive aspect of this evolution is that many risk managers are now moving from the compliance side of the business that can be dominated by box-ticking to become more involved in proactive risk management and the creation of value. It is a simple fact that regulation has boosted the implementation of risk management policies in Europe and the US and rules such as Sarbanes Oxley are not exactly renowned as creative forces. But Mr Canameras said that he hopes and believes that the development of risk management, while pushed by the rules, is being taken more seriously by companies that are beginning to see the more positive aspects of the discipline. Mr Micale said that the development of risk management within his own company and consequently his own job is a good example of how the wider profession is developing. He explained that his company’s board demanded a more holistic approach towards risk at the start of the financial crisis in 2007 and, as noted above, today Mr Micale runs a programme that deals with both insurable and non-insurable risks. Michel Dennery, the Director of Risk Management at GDF-Suez, and a Vice-President of Ferma, agreed that the role of risk management has evolved and said that a key focus of the function must now be to help the company actually take risks not just avoid them. Gaëtan Lefèvre, the President of Belrim, Belgium’s risk management association, said that all activities related to risk should at some point be placed under the responsibility of risk managers. “It is also necessary to make the voice of risk managers heard by boards,” he added. Warming to the theme that he has obviously given much thought to, Mr Micale urged Europe’s risk managers to emerge from their old insurance boxes and embrace the brave new world of enterprise risk. “The role should be for the person who is able to provide the most effective, convenient and suitable tool for an organisation to identify assets to mitigate and finally manage risks in the company,” he said, even though the ultimate decisions must be taken by the CEO and the board. But as so many risk managers will attest, agreeing to create an enterprise-wide risk management system is somewhat different to actually embedding the culture throughout the organisation and this is where effective communication and negotiation comes in handy. Mr Micale said that big hurdles will have to be overcome if risk management is to truly succeed. “There are silos that try to protect their own power and ability to make decisions or that do not want to deal with conflicts,” he said. Mr Lefèvre wholeheartedly agreed. The good news is that risk managers currently do have and certainly will have plenty of opportunity to remind boards of all that they can offer to create value for companies. Mr Dennery suggested that Solvency II may even provide an opportunity to sell risk management to the board because insurance companies will be more demanding of their clients’ risk management practices once the directive kicks in. Alexander Mahnke, CEO of Business Unit Insurance at Siemens, pointed out that an insurance company’s balance sheet can be an important ally of risk managers, as they attempt to find solutions to help their firms stay well capitalised in this tricky market, again adding another positive role to communicate upwards and outwards. “By understanding the risk appetite of the company, coming back to the balance sheet and finding out what the capital costs of each risk are, we can make some robust decisions,” he said. “We can transfer the risk to someone we trust, or leave it on the balance sheet and pay for it. That is what we are going to do more and more in the next five or six years.” But even if the profession does manage to use this current market to have its toe firmly lodged into the boardroom doorframe, it will not last long if bright young risk managers are not coming up the pipeline. “This is a major problem for us in Germany: to attract good talent,” warned Mr Mahnke. Mr Canameras said that AMRAE is working hard to solve this issue. The association already offers a number of courses for fledgling risk managers, and Mr Dennery said that the development of talent is a high priority for AMRAE. Mr Canameras said that, in France at least, more and more students are showing an interest in risk management. But during the discussion the risk managers also stressed how difficult it still is to fight for talent against other industries that offer higher levels of pay. Mr Micale subsequently told Commercial Risk Europe that he believes one of the main problems is that corporate risk management can be something of a blind alley in terms of career development. Once an individual becomes a risk manager where else is she or he going to go next? How many risk managers have made the next big step up to CFO, COO or even CEO? This is a problem when it comes to recruitment, pointed out Mr Micale, for how many ambitious graduates, young brokers or insurers or lawyers are going to want to take a job as a number two or three to a risk manager who looks settled into the job for life? Opportunities for younger risk managers arise of course when more experienced individuals cross the fence and join insurers and brokers. Two high profile examples of this move were on the stage this year at AMRAE in the persons of Stefan Sigulla, board member of HDI Gerling and former President of the DVS and Head of Insurance at Siemens before Mr Mahnke and of course Thierry Van Santen, CEO of AGCS France and former Risk Manager with Danone and President of AMRAE and Ferma. But this can hardly be represented as a positive thing for the profession as leading and highly experienced individuals from whom younger risk managers can learn so much are busy selling them insurance instead! Belrim’s Mr Lefèvre argued that the main problem is not one of money or career advancement but rather one of image, a point which we unfortunately did not have a great deal of time to pursue in depth but certainly one that we at CRE will pursue—so watch out for those fashion tips in coming months from the man in the ridiculous pin-striped suit.

Future perfect?

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