How FERMA is addressing risk managers’ needs in the light of COVID-19

​As president of the Federation of European Risk Management Associations—FERMA—Dirk Wegener has a broad overview of the ways COVID-19 has influenced the work of risk managers. Insurance challenges, an increased need for dialogue with chief financial officers (CFOs) and a more intense focus on risk management within corporations have all been reported by member organisations.

“If you are a corporate risk manager, a crisis like COVID-19 is a real test for a lot of measures you have put in place in advance to help your corporation respond,” Wegener says.

“A crisis such as this is unprecedented in terms of global reach and is in many cases a test for loss prevention measures and business continuity measures.

“Risk managers have had to help their organisations to go virtual, for example, to support people working from home and also to equip their corporates to help prevent the spread of the virus—so it is a very practical use case for the already implemented risk management procedures.”

Wegener says a key challenge for risk managers of companies working globally or internationally has been differences between authorities’ responses to the pandemic, which have varied in different countries and localities depending on the number of virus cases.

“From the point of view of a risk manager of a global or at least international organisation this creates an issue, because it’s very difficult to plan if you do not know what the authorities will deem to be necessary to be implemented next in terms of lockdown measures and so on,” he says.

“If you look at Germany, in different parts of the country different rules apply—so that makes it quite complex.”

​“It’s important for risk managers to be able to demonstrate, ideally in clear numbers, the value of risk management.” Dirk Wegener, FERMAThe hardening insurance market
Besides the issues raised by COVID-19, FERMA’s member organisations have ongoing concerns about cyber risk. The FERMA European Risk Management Survey, conducted before the COVID-19 crisis, revealed this as the number one concern for risk managers with insurance responsibilities.

“If you broaden the scope a little and include not only risk management but also insurance management, which is in many cases also part of the role, then the hardening market is a very hot topic, in particular because the COVID-19 crisis accelerated the hardening market in terms of further restrictions,” says Wegener.

He notes that as insurers face criticism about the clarity of their wording and regulators investigate whether certain policy forms provide cover or do not, the market’s reaction has been to add restrictions, increase rates and reduce limits—and into this mix comes the looming prospect of a hard Brexit, which Wegener expects will further impact premiums and the availability of insurance coverage.

The potential limits of re/insurance to meet future risks gave rise to the theme of this year’s FERMA Seminar, running online from October 12 to 13, which will focus on corporate risk and finance. One of its aims is to help risk managers think about responses and mechanisms other than insurance that can be used to financially protect their companies.

“We’ll look at captives, the needs they meet and opportunities for having a captive,” he says. “The other aim is to help risk managers equip themselves for their conversations with senior management, in particular with the finance department.

“We will educate them about the ongoing conversations on the CFO side, where the big theme is quantification of risk and the need to make comparisons with whatever their insurance premium spend is when making decisions.

“It’s important for risk managers to be able to demonstrate, ideally in clear numbers, the value of risk management: the financial cost of the risks without risk management and prevention measures, as compared to what happens after applying risk management techniques.”

The problems for insurers
In light of COVID-19 and the hardening market, risk managers are increasingly having to have difficult discussions about their insurance spending.

“Companies are all trying to reduce their spend as a response to a loss of revenues, and then if you have to report increased insurance costs, that is not appreciated,” Wegener says.

“Likewise, if as an alternative strategy you suggest leaving parts of the organisation uninsured or underinsured compared to the current status, that is also not good information for senior management to hear.

“The current state of the market is difficult, and I would say it is not meeting risk managers’ needs. Most risk managers would like to see better opportunities to transfer risks to the insurance industry and right now the market is going in the other direction, which in the end means the percentage of insurable risks compared to all the risks a corporation has is further reduced, which is not helpful.”

He is, however, mindful of the challenges faced by re/insurers, for whom a significant complication is the difficult regulatory environment—an issue that he believes will worsen with Brexit. Wegener adds that when it comes to global insurance programmes, the regulatory environment is also moving in an unfavourable direction.

“The never-ending debate about non-admitted insurance policies is another concern,” he says, referring to the unexpected challenges relating to issues such as tax, regulations and compliance that insurance companies can face when issuing insurance against risks faced in other countries.

“It shows that overall it’s difficult to lobby for commercial insurances in general—and we, the risk managers, have to live with the consequences. I’m convinced that insurers would very much welcome it if the regulatory side were more in favour of commercial insurance.”

Potential for public-private partnerships
In countries that already have public-private partnerships to address risks such as terrorism, FERMA perceives an opportunity to explore a similar approach for pandemic risks.

“Discussions are now going on as to what extent these state-backed solutions can be extended to also cover pandemic risks. In countries where these conversations are going on, our members are typically heavily engaged on a national level,” Wegener says.

In the same vein, FERMA has been working with the European Insurance and Occupational Pensions Authority (EIOPA) to explore the potential of public-private partnerships to address pandemic risks. The result is EIOPA’s “Issues Paper on Shared Resilience Solutions for Pandemics”, which is based on the views of representatives of commercial insurance buyers through FERMA, re/insurers and brokers at European level.

EIOPA’s principal aim is to address the near total absence of risk transfer for non-damage business interruption losses (NDBI) for systemic risks, as FERMA proposes in its Resilience Framework for Catastrophe Risks.

FERMA believes that a public-private insurance-based solution, based on a sound foundation of risk management, is essential to support European enterprises against pandemic. It also argues that, even though there is action in some member states, European-level involvement is necessary to create resilience across the Single Market.

“This was a very interesting project and a great opportunity for FERMA to position risk management as a very important profession,” says Wegener.

President’s priorities
As FERMA’s president Wegener aims to continue to lobby for the risk and insurance management professions at a European level, and to support the education of the profession by promoting Rimap, FERMA’s certification tool.

“We would like to use this as a proof of a certain standard of a professional qualification at a European level,” he says.

“Last but not least we would like to support exchange among our members—for example, through the working group we have initiated to exchange ideas and perspectives on COVID-19 insurance-based public-private partnerships.

“This is just one example of where I would like to engage myself and help our members to exchange their ideas.”