Op risk climbs agenda in EMEA FIs, rates continue to fall: Aon

The newly popular operational risk managers will have good news to report to the board because rates continue to fall for Financial Institution (FI) business and terms and conditions remain stable, creating a 'perfect storm' for any insurance buyer. ARS' survey found that EMEA and global financial institutions surveyed agree that regulatory and legislative changes followed by economic slowdown, increased competition and brand protection are the top four risk factors currently facing the sector. The broker's latest analysis of customers in the sector based on its Aon GRIP(tm) database found, however, that EMEA financial institutions are more concerned than their global counterparts with other risks including technology or system failure, cash flow and liquidity risk, crime, theft, fraud or dishonesty of employees and business interruption.hide"The report particularly highlights the increased importance of operational risks when compared to financial institutions' credit and market risks," said Aon. Specifically the report found that some 67% of EMEA financial institutions that took part in the survey say they have experienced a loss of income in the past 12 months because of regulatory/legislative changes. Some 63% suffered as the economy slowed or stalled and 57% cited increased competition. Not surprisingly, given the focus of recent debate in the corporate risk management market over the last 12 months, some 52% of EMEA financial institutions said that damage to their reputation or brand had caused them financial loss in the last twelve months. This was an almost identical result to respondents from global financial institutions (51%). The survey found that when it comes to insurance, buyers value price, financial stability and claims service above all. Insurers will be concerned that long-term relationships are valued less and less as they seek to retain business through such partnerships in a seemingly eternally soft market. "A number of themes have emerged, not least the influence that relationships with insurers are having on buying decisions," stated ARS in the report. The broker found that among EMEA financial institutions the attraction of long-term insurer-buyer relationships has fallen in the past year to 'almost negligible levels' in favour of price. "Our analysis reveals that for 88% of financial institutions in Q3 2014, price was the deciding factor in their buying decision. In the same quarter last year, this figure was only 62%," stated ARS. The broker found more bad news for insurers as it reported that terms and conditions remain stable as premiums fall, which clearly does not bode well for profits even if claims levels remain stable. "The majority of respondents to the survey indicate that the terms and conditions they are being offered for their typical insurance programmes broadly remain unchanged," stated the report. ARS did find, however, that Directors' and Officers' (D&O) insurance has experienced 'some change and volatility'. The broker reported that 24% of respondents said that their Directors' and Officers' coverage terms had become 'somewhat more restricted' while 29% have witnessed improvements in terms and conditions. "While we saw London and global Directors' and Officers' liability markets impose some rate increases up until 2013, the trend in 2014 has been one of rate declines, largely driven by increased market capacity and appetite. Aon GRIP(tm) data also reveals that fidelity/crime premiums have been rising steadily since Q2 2013, with a 2.7% increase in Q3 2014. Professional indemnity premiums fell as far as 3.3% in Q4 2013, but rose by 1.7% in the following three-month period," reported Aon. Enrico Nanni, Chief Commercial Officer, Financial and Professional Services at the Aon Global Broking Centre, said: "In today's global environment, financial institutions face increasingly complex challenges including: regulatory scrutiny of risk and capital ratios, examination of business practices that impact consumers or corporate clients, sustained economic pressure and rising litigation. Meanwhile, technology failures and the constant threat of data breach from cyber-attacks are of increasing concern. The stakes for organisations are high. It has never been more critical for businesses to access accurate and up-to-date intelligence, and proactively address business risk at every level of the organisation."

Op risk climbs agenda in EMEA FIs, rates continue to fall: Aon

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