22 October 2012

Risk management is linked to better corporate performance, FERMA survey finds

The 2012 survey showed that companies with the most advanced risk management showed the strongest level of growth for the past five years, as measured in terms of earnings before interest, taxes, depreciation and amortisation (EBITDA).

From a record number of 809 responses from risk and insurance managers in European 20 countries, the survey found that:

• 28 per cent of companies with advanced risk management practices reported an EBITDA growth rate of more than 10 per cent, compared to 22 per cent whose risk management was classed as mature, 15 per cent for moderate and 16 per cent for emerging.
• Among companies with an EBITDA growth rate of more than 20 per cent, three-quarters (74 per cent) have mature or advanced risk management practices.

The President of FERMA, Jorge Luzzi, said: “We have long believed that good risk management contributes to sustainable corporate growth. Now we have clear evidence that there is a correlation. This is a particularly important finding in light of the pressures on corporate results during the last five years.”

In the current financial and economic climate, top management wants more information on the risks and risk management of the business, according to 46 per cent of respondents. In 53 per cent of the companies with mature or advanced risk management (2010 – 45 per cent), the function now reports to the board, a board committee or a top executive.

However, the survey found that there is considerable work to be done before companies across Europe fully understand the implications of the European 8th Company Law Directive and integrate them into their business.

When it comes to the insurance market in the current financial climate, European businesses say they want sustainable relationships with stable partners. They are not looking generally to increase risk transfer (17 per cent), but they want long-term arrangements (40 per cent) and more robust insurance partners (32 per cent). More than half (57 per cent) reported strengthening their loss prevention activities.

The respondents’ message to insurers is improve efficiency but don’t forget innovation. They want more efficiency in the claims settlement process (43 per cent), more tailored policy wording (36 per cent) and innovative coverage ( per cent). Neither more capacity (14 per cent) nor greater geographical coverage (12 per cent) is a high priority for respondents, which is a measure of the insurance market resilience following the catastrophe losses of 2011.

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© FERMA