FERMA leaders reflect on ever-more critical role of risk managers

As the Federation of European Risk Management Associations (FERMA) celebrates its 50th anniversary this year, its president and chief executive reflect on that period, noting how the complexity of the risk landscape has also shifted immeasurably since the organisation was first conceived in 1974.

“The risk landscape has evolved immeasurably over the last 50 years. Not only have we seen the range of exposures expand considerably, but there has also been a significant increase in the complexity of risk, the speed and scale of impact, and the level of interconnectedness,” Charlotte Hedemark, president of FERMA, told FERMA Forum Today.

She said that the insurance industry has endured a number of ‘black swan’ events over this period. One example was the 9/11 attacks, which effectively spawned the standalone terrorism market, while events such as Hurricane Katrina have greatly altered the landscape for natural catastrophe risks.

“We have also seen the pace at which risks evolve and spread change dramatically,” she said. “The speed of digitalisation over the last decade, for example, has created a rapidly expanding risk environment, where cyber threats evolve at great speed and have global repercussions. At the same time, the shifting climate is driving up the frequency and severity of natural catastrophes across every region.”

She noted that the rapid evolution of emerging risks coupled with an increasingly interdependent global economy means that multiple industry sectors and jurisdictions can be simultaneously impacted by the same risks, making both physical and digital supply chain exposures a major challenge for businesses.

“Unsurprisingly, the risk management function has evolved in tandem, expanding considerably from its original remit of primarily natural disasters, accidents and physical risks, to encompass technology challenges, financial crises, climate change and growing geopolitical turbulence.”

50 years of change

Back in 1974, what is now FERMA was formed as the Association Européenne des Assurés de l’Industrie (European Association of Industrial Insureds), or AEAI. Its original six members were: Belgium (GAI/VVI), France (GACI), Germany (VIV), Italy (ANRA), Netherlands (A.O.G.) and the UK (AIMIC).

Hedemark added that against this changing risk landscape, the role of the risk manager has undergone a huge transformation. “The scope of risk management has increased over the past five decades, from a historical focus on physical risks, accidents and natural disasters, to include a growing array of technological, financial, and political exposures,” she said.

“With companies also facing increasing regulatory pressure and more onerous reporting requirements, risk managers are operating in a more challenging environment.

“We are seeing the risk management function increasingly aligned with overall business strategy.” Typhaine Beaupérin, FERMA

“The scale, complexity and speed of change that characterise the risk environment now mean that risk managers must maintain a more comprehensive view of risk across all business units and levels. Alongside effective scenario planning, they are leveraging new technologies including artificial intelligence and data analytics to improve risk identification, enhance analysis and bolster response capabilities.”

Typhaine Beaupérin, chief executive officer, FERMA, added that the increasingly interconnected nature of risk has seen the focus of risk managers pivot from risk financing and mitigation towards enterprise risk management, requiring greater strategic input from practitioners at board level to drive more informed decision-making.

“As such we are seeing the risk management function increasingly aligned with overall business strategy. FERMA’s research of developments in the risk management arena show clearly that the risk practitioner’s remit now involves greater interaction with corporate strategy and direct involvement in board-level activities.”

She noted that, as companies also raise their game on sustainability, risk managers are playing a much more prominent role in managing ESG risks, including risk analysis, framework definition and reporting on ESG-related areas. Increasing reporting requirements introduced by developments such as the Corporate Sustainability Reporting Directive (CSRD), and the Critical Raw Materials Act (CRMA) are also making this a top senior management priority.

“With additional novel risks emerging and further legislative changes anticipated in the near future, risk managers are having to ramp up their preparedness to meet these challenges head-on.”

Changing priorities

Hedemark acknowledges that the priority areas of risk focus for organisations are also changing. She said FERMA’s research shows that the risk priorities for organisations evolve depending on the time horizon applied, as they look to respond to immediate disruptions while also putting in place the risk management frameworks to adapt to longer-term exposures.

“Cyber attacks continue to be a primary risk for businesses, and risk managers are consequently focused on creating a more resilient digital environment for their businesses to operate in. Connected to this is the ongoing threat of data breach which continues to be a key area of focus for companies.

“Geopolitical tension and economic uncertainty remain significant areas of concern, and organisations are monitoring closely the potential for disruption that these risks pose. Also, the flood of new European legislation introduced in recent years is increasing the reporting burden on companies, with risk managers taking greater responsibility for compliance issues.”

Beaupérin added that, from a longer-term perspective, the focus for the majority of organisations is clearly on the impact of the evolving climate, with companies working to adapt their business models to address this global issue and integrating frameworks to manage the transition to a carbon-neutral world.

“Risk retention is a critical consideration for risk managers, and many are using captives as an integral component of their risk management plan.” Charlotte Hedemark, FERMA

“Risk managers have an integral role to play in supporting businesses in their transition to a carbon-neutral environment. Critical aspects of their role range from identifying key exposure in risk maps and developing climate-related risk scenarios, through to assessing the financial impact of climate change and addressing the physical risks posed.”

Hedemark added that another preoccupation of risk managers is insurability. FERMA is seeing growing concern amongst the risk management community regarding the potential for critical business risks such as climate-change related physical risks, cyber attacks, supply chain disruption and digitalisation becoming uninsurable, she said.

“Risk retention is a critical consideration for risk managers, and many are using captives as an integral component of their risk management plan. Interest in such vehicles is growing, with increasing use anticipated across multiple business lines, particularly where they are seeing a decline in the availability of cover.”

Turning her thoughts to the future of the profession, Beaupérin said there remains a lot of work to do to raise the profile of risk managers to the level where they are playing a key role in their organisation’s strategic decisions.

“While the risk management function has greater access to the boardroom than ever before, it is essential that we strive to ensure that it has a permanent seat at the table.

“In addition, while this is a maturing function, there are certain areas where it needs to mature more quickly—such as risk prioritisation and quantification activities. We also need to raise the level of professionalism in risk management, particularly through more widespread accreditation.”

She said that amid an evolving risk landscape, the risk management function needs ongoing investment to ensure that practitioners can acquire the data and capabilities they need to monitor and respond to developing risks.

“As part of this, investment in and use of new technologies will become increasingly important, enhancing the abilities of the risk manager and driving innovative approaches to risk management as they gear up to face the changing risk landscape.”

FERMA Forum Today is in partnership with Captive Review, part of Newton Media.

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