Time for a global approach to risk?

Risk managers at the IRMSA conference this week will inevitably discuss the rising importance of risk management in the South African economy and beyond the Sub Saharan Africa (SSA) region. This will undoubtedly be followed by discussion among risk managers themselves and their core service providers and experts about how the community of risk managers can use the recent explosion of interest in the discipline to further the goals and ambitions of those that carry it out on a day-to-day basis—the IRMSA members. The state of the profession was the central theme last month as European and international risk managers gathered in Versailles, France for the forum organised by the Federation of European Risk Management Associations (Ferma) every two years, at which the findings of its in-depth ‘state of the nation’ survey were discussed at length. As discussed in depth below, this year’s Ferma survey confirmed the overwhelming anecdotal evidence gathered by Commercial Risk Europe over the last few months as we carried out our annual Risk Frontiers survey of leading European risk managers. That is, that risk management has rocketed up the boardroom agenda in recent times and as a result risk and insurance managers find themselves having to deal with a whole host of new risks. European and international risk and insurance managers on the whole welcome this new attention and the spotlight as for far too long they have been frustrated at being stuck out on the fringes of the corporations for which they work. There is an overwhelming sense that while a good proportion of European companies have embraced the notion of risk management and added the function to their insurance manager’s job title actually they don’t really get it. Evidence provided by the Ferma survey, the Risk Frontiers survey, events organised by CRE and others over the year and ongoing interviews with both risk managers and key service providers all over Europe and worldwide suggests, however, that all too often risk management remains a tick box, compliance-driven activity. It is generally not applied in the dynamic and enterprise-wide manner that the majority of risk managers themselves believe it should be and this is frustrating for the individuals who carry the job title. Perversely, it seems that the pressures exerted by the credit crisis and the subsequent impact of the economic and financial meltdown has not only sharpened the focus on risk management in the boardroom but also on the need for good old-fashioned asset protection. So, while lip service is being paid to the need for improved enterprise-wide risk management and risk managers are expected to step up to the plate and deliver this, they are also being told to broaden and deepen the insurance coverage obtained to help reduce volatility, at no extra cost of course. And this challenge is made even more complex as European and international companies inevitably take on ever wider and more complex risks as they seek to counter sluggish domestic demand by rapidly expanding to emerging markets such as Sub Saharan Africa. Arguably, based on the evidence gathered by the Ferma survey and CRE’s own research, this has led to something of an identity crisis within the European risk and insurance management community. Another period of self-examination appears to have arrived as Europe’s risk and insurance managers struggle to work out exactly where they sit within their corporations and how to take advantage of the opportunities offered by this new profile for the profession. It seems to this commentator at least that such tricky questions can only be answered once the community of risk and insurance managers tackle the more basic question of what and who they really are; are they enterprise-wide risk managers that also buy insurance or are they insurance managers that also help to manage business risk? This is arguably why the arrival of the recent ISO standard on risk management stirred up such a hornet’s nest and debate. It seemed that the standard was attempting to define the community before it was really ready.hideSignificance This is arguably also why the certification project proposed by Ferma to provide a pan-European certification standard for individual risk managers could prove to be very significant. If the European federation manages to obtain the buy-in of other international risk management associations and federations such as Rims in the US, Alarys in Latin America, RMIA in Australia and New Zealand and possibly IRMSA here in South Africa then it really could be onto something big. It is possible, however, that some kind of global consensus on the risk management profession may prove difficult to achieve because of the different stages of development and challenges faced by risk and insurance managers around the globe. These differences ensure that risk and insurance managers view themselves rather differently from continent to continent.The world has gone global and needs global rules, regulations and consensus on key areas like standards of corporate governance and ethics to ensure that it continues to develop along the right path, whatever that may be. But the global economy also remains very national and local in many respects, not least, from a very practical standpoint, in the application of insurance regulations, for example. Just ask any risk manager given the job of creating a consistent, cost-effective and compliant global insurance programme in Europe, Africa, Latin America and Asia currently how easy the job is!Another complication is the fact that some parts of the world are struggling and therefore fixed in defensive and offensive mode at the same time. As noted above this is a big challenge for European risk managers currently. Elsewhere, the broader economic challenge is somewhat different and so has different implications for risk managers and how they approach their job. In Sub Saharan Africa, for example, risk managers seem to be totally focused on how they can help their companies enjoy the opportunities offered by growth in a controlled and risk-managed manner, rather than having to really focus on liquidity and credit problems. At the same time risk managers in South Africa and the wider region also have to deal with a whole host of social and political risks that are inevitably thrown up by rapid economic development, not least infrastructure challenges such as power supply and patchy telecommunications networks. One can also easily argue that the problems highlighted in the news pages of this first issue of CRA such as strikes and piracy are a direct result of growth and the stresses caused by inevitable exclusion from that growth by large parts of the population. But while there are big differences to the environment in which risk and insurance managers need to operate in Africa and Europe there are also a lot of big common themes and these perhaps offer hope for improved global communication and consensus in the community. It came as no surprise for example, despite some pressing local issues, that the global macro economic and political picture and its impact on local markets and risks was also a big topic of debate during the roundtables in Johannesburg and Cape Town that we organised earlier this year in which two groups of leading South African risk managers and brokers took part. Just as in Europe it seems that the ever wider array and complexity of risks faced by modern risk managers in South Africa and worldwide has raised big questions about the ability of traditional risk and insurance managers to cope with and take full advantage of the opportunities offered. Roundtable And, just as in Europe, this throws up all kinds of tricky questions for the profession as it looks forward to trying to enjoy ‘Africa’s time’, as Anton Roux, CEO of Aon in South Africa phrased it during his interview in this issue. The experts gathered by CRE and IRMSA for the roundtables in Johannesburg and Cape Town agreed that the new risk environment faced by South African companies demands a new breed of risk professional who is willing and able to rise to the task and, as in Europe, challenge their bosses when and where necessary. Volker von Widdern, Managing Director, Marsh Africa/Marsh Risk Consulting, a speaker at this week’s IRMSA conference, said during the Johannesburg meeting that the role of the risk manager itself certainly needs to be considered. Specifically, he said, the question needs to be asked whether they have the skills to address and respond to the escalating risks that businesses face. He also said that an important question is whether risk managers are able to execute policy within the business to address these risks. “The right skills need to be pinned down and there needs to be a balance between the acquisition of the right skills and pragmatism when dealing with standards. South Africa is blessed with versatility and responsiveness to make it a place to do business but there is always a compromise,” he pointed out. “What is risk management about? Do risk managers make a difference and do they have the ability to influence the risk? Actually, who solves the risk and what does it take to solve a risk? Let’s get something done in time, on time and first time to budget. These are key questions and demands for risk managers that need to be considered. They may be far away from the ‘real’ game of how the organisation takes a decision but they could and should be at the intersection of decision-making,” he continued. As the analysis of the findings and implications of the Ferma survey that follows makes clear, Mr Von Widdern could just as easily have made these comments from the podium in Versailles last month as in Johannesburg. Chris Brits, Executive Leader Risk Management at Alexander Forbes and the main representative from IRMSA on the Cruywagen/IRMSA Risk Foundation, could equally have been in Versailles as he asked whether the profession is prioritising risk correctly in a local context. “What is the definition of risk management? If it is very operational it is not therefore very strategic. When you hold discussions with clients it is not often very strategic and often insurance managers are forced into a bigger role that they are not necessarily equipped for,” he commented. Hear no evil Gert Cruywagen, Risk Manager with Tsogo Sun Group and founder of the Cruywagen/IRMSA Risk Foundation, said that it is also often the case that the board or audit committee listens but simply does not hear the real message and this is potentially a problem imported from the UK. “They get the message but do not hear it. Look at Lehman Brothers and the way the audit firms hardly gave any bad news to the board. It is the same in Europe. They like to cloud the words and content so that it sounds more positive. So I think the real problem here in South Africa is perhaps that a lot of the auditors come from the UK and so the system is based on the UK model,” he said. So while there are clearly differences between risk managers in Europe, South Africa, the wider Sub Saharan Africa region and the rest of the world there are also a heck of a lot of common themes too, regardless of where the local economy sits in the cycle. The South African risk management community may not have quite the identity crisis that the European community appears to be struggling with currently. It seems to have a pretty clear grasp of what it is about—risk first and insurance very much second—and the recent decision by the South African government to award it the sole license to education for risk managers in the country appears to underline this fact. But the evidence provided by our two meetings earlier this year in Johannesburg and Cape Town definitely suggest that the community here also has a challenge with its profile and ability to really have an impact at the most senior and strategic decision-making level. This certainly suggests to this commentator at least that IRMSA and other African risk groups would do well to use the good offices of the International Federation of Risk and Insurance Management Associations (Ifrima) to start talking to other international risk and insurance management representative bodies about how they can work more closely together and present a more united front on key international topics that affect them all. Ferma’s plans to create a pan-European and potentially international certification of individual risk managers seems like a great place to start the ball rolling. European risk managers kick-off global certification The Federation of European Risk Management Associations (Ferma) used its recent seminar in Versailles, France to truly kickstart its planned pan-European certification project. It seems, however, that the federation is already thinking global and seeking input from risk managers across the world. Adrian Ladbury reports. Ferma committee members had meetings with Steve Fowler, CEO of the Institute of Risk Management (IRM) and executives from Ernst & Young at the end of its recent seminar in France to discuss the federation’s ambitious plans for a pan-European certification for accreditation of risk managers. Ferma hopes to deliver a professional qualification that can augment existing national qualifications and provide individual risk managers with a proof of professional competence and practical experience that is recognised across Europe. The federation was keen to stress, however, that this will be an individual qualification and proof of competence. It will not be a mark of quality of risk management at corporations that could be used to enhance credit ratings, help raise finance and be included in annual reports. The European federation believes that it also has a chance to also use the project as a means of binding the global risk and insurance management community more closely together. Key associations and federations such as Ifrima, the International Federation of Risk and Insurance Management Associations, Rims in the US, RMIA in Australia and Alarys in Latin America are keen to talk about the project. Ifrima was represented at the Ferma seminar by Carl Leeman, the association’s current president who is also a Ferma committee member. Cristiane Alves, President of ABGR, the Brazilian risk management association and a member of Alarys, also attended the seminar. Much of the talk over the two-day seminar among the European risk and insurance managers was actually about global issues that affect global companies and demand a global risk management and cross-border insurance response. It is clear therefore that projects such as the certification could and should be used to help build closer cooperation between risk and insurance managers across the world and, if nothing else, help ensure that the community is represented at an international level on a lobbying basis. Julia Graham, Chief Risk Officer at law firm DLA Piper, and leader of the Ferma certification project along with Michel Dennery, Ferma Vice President and Deputy Chief Risk Officer, Audit and Risks Division at GDF Suez, said that it was critical to understand that Ferma itself would not run the project. Ferma has limited resources and would need to partner with expert organisations to deliver such a complex and important project, she said. IRMSA in South Africa has invested a lot of time and effort in risk education in recent times and proudly has been granted the right to be the sole provider of risk education in the country by the government. It plans to extend the education outwards throughout Africa over time. It is likely, therefore, that IRMSA will be interested to talk to Ferma about its initiative.

Time for a global approach to risk?

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