Monday, 13 February 2012
In spite of progress, experts say tough tasks lie ahead for risk managers
European risk managers have achieved much in recent years, but they still have plenty of work ahead, according to a panel of leading risk managers from across the continent. On the final day of the 20th Les Rencontres d'Amrae, they urged the profession to ensure that the risk management gospel is spread throughout organisations and that the job appears attractive to the next generation of young and talented professionals.
During the discussion, participants also debated the level of engagement boards have with the management of risk and highlighted the skills that are demanded of risk managers today. They said these skills must extend beyond expertise in insurance and include the ability to communicate and negotiate effectively.
On this issue of board engagement, Maurizio Micale, Corporate Risk Management and Insurance Director at ST Microelectronics, warned that on the whole directors are not ahead of the risk curve. “I believe that today, European boards of directors are more reactive than proactive towards risks,” he said.
To some extent, this can be explained by a risk adverse culture within European organisations, he continued. “European companies have much less risk appetite than companies in the United States,” Mr Micale said. “But I am not really sure that boards have a real awareness about risk appetite. They are more about asking risk managers to sort out risks and telling them where their companies could have problems,” he added.
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But this does not mean that the role of risk manager has not evolved, he said. He argued that the very nature of the insurance market has changed from a commodity-based approach towards more risk-centred offerings. So companies have an incentive not to see insurance as the answer to all risks, but as one solution amongst many, said Mr Micale.
And, he believes future generations of board members will be much more aware about risk appetite.
“The evolution of risk management has been recent, but also very quick,” said AMRAE's president Gilbert Canameras. He said that many risk managers are moving from the compliance side of the business to be more involved in the creation of value.
Such a development reflects the fact that although regulation has boosted the implementation of risk management policies, companies are becoming aware of their wider advantages, Mr Canameras said.
As an example of changes in attitude towards risk management, Mr Micale explained that his company's board demanded a more holistic approach towards risk at the start of the financial crisis in 2007. Today Mr Micale runs a programme that deals with both insurable and non-insurable risks.
Michel Dennery, the director of risk management at GDF-Suez, and a vice-president of Ferma, agreed that the role of risk management has evolved. Today the function must help its company to actually take risks, he explained.
Gaëtan Lefèvre, the president of Belrim, Belgium's risk management association, said that all activities related to risk should at some point be placed under the responsibility of risk managers. “It is also necessary to make the voice of risk managers heard by boards,” he added.
Mr Micale urged risk managers not to restrict themselves to the transfer of risks to insurance markets. “The role should be for the person who is able to provide the most effective, convenient and suitable tool for an organisation to identify assets to mitigate and finally manage risks in the company,” he said. Even though the ultimate decisions must be taken by the CEO and the board.
“The goal is to establish an embedded risk management culture in the organisation,” Mr Micale remarked, noting that hurdles will have to be overcome. “There are silos that try to protect their own power and ability to make decisions or that do not want to deal with conflicts,” he gave as an example.
He said that the implementation of an Enterprise Risk Management (ERM) policy should provide the opportunity for firms to stop and think about processes, and how diverse sectors can share information. The most important goal, according to Mr Lefèvre, is to have a risk management culture embedded in the company's management structure and processes.
The good news is that risk managers will have plenty of opportunity to remind boards of all they can do to create money for companies. Mr Dennery said that Solvency II will provide such an opportunity, as insurance companies will be more demanding of their clients’ risk management practices once the directive kicks in.
Alexander Mahnke, CEO of Business Unit Insurance, noted that a company's balance sheet can be an important ally of risk managers, as they attempt to find solutions to help firms stay well capitalised. “By understanding the risk appetite of the company, coming back to the balance sheet and finding out what the capital costs of each risk are, we can make some robust decisions,” he said. “We can transfer the risk to someone we trust, or leave it on the balance sheet and pay for it. That is what we are going to do more and more in the next five or six years.”
Another great challenge for the profession is to attract new talent, so that the progress made in the past twenty years does not stall. “This is a major problem for us in Germany: to attract good talent,” warned Mr Mahnke.
Mr Canameras said that AMRAE is working to solve this issue. The association already offers a number of courses for fledgling risk managers, and Mr Dennery said that developing talent is a high priority for AMRAE.
But during the discussion the risk managers also stressed how difficult it remains to fight for talent against other industries that offer higher levels of pay.
Mr Lefèvre argued however that the main problem is not one of money, but of image. But on a positive note, Mr Canameras believes more and more students are showing an interest in risk management.
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