FERMA: underscoring the importance of risk managers to corporate resilience

A major new report by the Federation of European Risk Management Associations (FERMA) and the global management consulting firm McKinsey provides evidence of the importance risk and insurance managers place on the resilience of their organisations.

The report presents the views of risk and insurance professionals and senior executives about a post-pandemic view of resilience management in their organisations across sectors globally in the summer of 2021.

Launching the report, the president of FERMA Dirk Wegener said: “Before the pandemic, we knew that risk management and risk and insurance managers had an important role in keeping shocks from destabilising their companies. The pandemic proved that. Until this report, however, we had little data on that contribution.”

Key findings of the report:

  • More than 90% of those surveyed said that the global pandemic made risk management and resilience more important to their organisations; more than 50% said to a considerable or great extent.
  • The majority of participants feel their organisations are well equipped to manage resilience overall. Risk and insurance managers are involved in the process in a meaningful way with further room to lead initiatives, especially in predictive capabilities such as scenario planning and stress testing.
  • More than 60% of the participants acknowledge resilience as a top priority or very relevant in strategic decision-making.
  • Looking forward, almost three-quarters of the risk managers surveyed see a clear need for both improving risk culture and more strongly integrating resilience in their organisations’ strategy.

“The pandemic has highlighted the importance of good risk and crisis management and its contribution to resilience, but we must not be complacent,” said Dirk Wegener.

“We continue to face other, potentially disruptive shocks, for example, from climate change and cyber risks. Resilience is essential for the success of European business, and as this survey shows, in this, risk and insurance managers can be leaders.”

Managing resilience

The survey probed the dimensions of resilience using three lenses: the relevance of resilience for organisations, their ability to manage resilience (capabilities), and the extent of the risk function’s involvement (scope).

In terms of the areas of resilience that organisations find the most relevant to them:

Financial, operational and digital/technological resilience are considered the most relevant areas of resilience across most industries. Over 60% of risk managers consider these three areas of resilience very relevant.

Foresight capabilities is the area that is ‘least’ relevant in terms of organisational resilience.

Disruption and crisis-response capabilities are seen as more relevant than foresight capabilities, which possibly reflects the situation most organisations find themselves in in the context of the pandemic. This finding could reasonably be expected to change over time.

Relevance :

Which areas are most relevant for your organisation’s resilience?

Overall, the majority of risk managers (57%) rate their organisation’s capabilities and effectiveness of its tools in managing resilience highly. Only 10% rate their company’s capabilities at managing resilience as poor.

Over half of those surveyed believe their organisations currently have effective capabilities to manage resilience from a financial dimension.

However, there appears to be room for improvement around capabilities to predict events and conduct scenario analyses and stress-tests to assess potential outcomes. One-quarter of respondents say that they have no foresight capabilities currently in place.

Furthermore, only one-third of respondents say they have effective crisis-management capabilities in place, a possible insight from the pandemic.

Scope of involvement

The scope of involvement of risk and insurance management in the different dimensions of resilience varies. Involvement is highest in the areas of operations, digital and technological and disruption & crisis response.

For more than 3 in 10 surveyed, risk and insurance management is not at all involved in market position or reputation, brand and customer dimensions of resilience.  The survey also found that risk and insurance managers most often take a leading role in disruption & crisis response—far more than in any other resilience area.

Future outlook

Three-quarters of risk managers expect a greater emphasis put in the near future on improving risk culture and integrating resilience efforts more deeply in the strategy process.

They do not expect that interactions with external stakeholders, including regulators, would play an important resilience- strengthening role. This implies that their efforts at building and managing resilience will be more inward-directed.

While almost half of the risk managers surveyed will place a major emphasis on interactions with their board as part of their efforts on resilience-strengthening going forward, more than two in five only expect to place a minor emphasis on this aspect.

At the same time, risk managers emphasize in interviews that it is essential to educate the Board room about the value of risk in providing meaningful risk reporting, performing scenario analyses and challenges, etc. to improve decision-making.

Finally, the recent pandemic crisis produced different lessons, e.g. in managing supply chain risks, improving fast and informed decision-making by adapting the risk governance, building a better data infrastructure etc. Many risk managers are now using this opportunity to improve their value proposition and profile across the organisations.

FERMA said that resilience is a key word in supporting its members. The theme of the 2021 FERMA Talks event on 11-12 October is Risk and Resilience: learning to deal with disruption. This survey provides a foundation for future work on resilience. FERMA added that it will will also embed resilience into its advocacy work when we contribute to projects, such as the European Green Deal and the European Digital Agenda.

To read the full report click here.

Overall, the majority of risk managers (57%) rate their organisation’s capabilities and effectiveness of its tools in managing resilience highly. Only 10% rate their company’s capabilities at managing resilience as poor.

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