Risk managers rise to the COVID-19 challenge but worry about insurance

A Europe-wide survey of risk managers reflects a profession that is growing in strength despite the challenges of COVID-19, but which also has serious concerns about the hardening insurance market.

The Federation of European Risk Management Associations' biannual European Risk Manager Report show digital risks as the most significant threat to business in the short (12 months) and medium-term (3 years). Cyber threats are the number 1 risk in both time frames, and data theft and fraud are growing in significance.

Uncertain economic growth appears as the second most worrying threat in teh short term, but shifts to third place for the medium term.

Risks related to sustainability are two of the top three risks in the long term (10 years) with climate change and environment damage the number 1 risk and extreme weather events number 3.

President of FERMA, Dirk Wegener said: “This survey took place before the implications of COVID-19 were clear, but we can see that the risk manager is strengthening his or her contribution to the recovery and sustainability of the organisations.

"The COVID-19 crisis heightens the importance of the top concerns of risk managers as shown in the report: digital risks, economic uncertainty and sustainability. Today, the priority given to these risks might be different, depending on the business sector, but their overall importance would not change.”

Insurance

This year's survey highlights major concerns and changing attitudes amid a hardening insurance market. Main findings:

- 90% are concerned about limitations and exclusions for emerging/specific risks.

- 88% are concerned about changes in market conditions.

- 68% are concerned about concentration in the insurance market.

Captives are garnering more attention as a result, with 43% of risk managers considering this option compared with 15% in 2018. A not inconsiderable 27% of risk managers are planning to use an existing captive for hard to place risks compared just 1% in the 2018 survey. And 16% of risk managers plan to create a new re/insurance captive compared with 14% in 2018.

Wegener said: “Post COVID-19, we are seeing a market that is unsettled and tougher, as insurers deal with losses on both sides of the balance sheet. Capacity for some lines of cover may be very limited and expensive. The insurance risk manager’s skills and experience will be especially valuable in protecting their companies at this time.”

The future of the risk management profession

FERMA's 20202 study suggests the strategic role of the risk manager continue to grow, with an encouraging 60% of risk managers assessing risks related to various organisational strategies at the outset, compared with 47% in the previous survey.

Innovative technologies such as data analysis, data visualisation, process automation and/or artificial intelligence were a part of the picture for 67%, and more than half work closely with IT and information security on cyber risks, and about a third are directly involved in the management of risks related to the adoption of new technologies - something that was only last week highlighted by the World Economic Forum as a must for today's forward-thinking organisations.

Wegener concurs: “Risk managers are increasingly taking advantage of innovative technology to enhance risk measurement, analysis and treatment. This is essential for us to manage the lessons learned for the post COVID-19 world for our organisations.”

Finally, 40% of survey respondents say they are already "playing or are planning to play" a specific role regarding environmental, social and governance-related, or ESG risks.

This anonymous web-based survey was distributed through FERMA’s 22 member associations and the PwC European network between January and mid-March 2020. Responses were received from 764 professionals in 34 countries. The majority of responses came from risk managers in industry (54%) and financial services (29%).

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