BY ANTONY IRELAND
Risk managers are playing a bigger role in business decision-making than ever before, according to Accenture's 2013 Global Risk Management Study.
The proportion of organizations having a chief risk officer (CRO) or executive-level equivalent rose from 78 percent in 2011 to a near-universal 96 percent in 2013, according to the survey, which questioned C-level executives at 446 organizations from seven industries, each with at least $1 billion revenues.
The survey found that risk management is increasingly integrated and connected, playing a much larger role in decision-making -- particularly in budgeting, investment decisions and business strategy. Respondents also saw risk management as enabling growth and innovation.
Indeed, according to Accenture, risk management has evolved from "the department that says no" to "the department that enables execution."
Eric Jeanne, managing director of Accenture in France, works primarily with clients in the insurance industry, the sector most represented in the survey (22 percent). He told Risk & Insurance®:
"What really comes out of the survey is organizations' increasing desire to embed more closely their risk management capabilities -- which had been built initially to cope with new regulations -- into the business processes, with the real intention of getting value out of risk management."
This, he said, was particularly relevant in the financial sector, where risk managers are under huge pressure to comply with increasingly stringent regulations while facing dwindling investment returns.
"We have entered a new paradigm," Jeanne said. "In the past, insurers generated a significant portion of their profits from their activities in the financial markets. Now, they can expect lower returns, so this is driving risk management to be more embedded in the core insurance functions such as underwriting, claims management and the overall corporate strategy."
According to the study, "nearly all surveyed firms give higher priority to risk management now than they did two years ago," with 92 percent of respondents reporting that risk management played an integral role in budgeting and forecasting, 87 percent saying it played a role in financing/merger and acquisition decisions, and 84 percent saying the same for strategic planning.
However, Accenture added, some organizations have made much greater strides in developing their risk management functions than others.
The survey highlighted a lack of available talent as a major challenge, particularly as advancements in analytic technology mean risk management departments are increasingly expected to analyze ever-increasing amounts of data, and turn this analysis into business insight.
According to respondents, legal risk was the risk type most expected to rise over the next two years, followed by business risk and regulatory risk.
Financial Industry Trend
However, the survey's focus on financial institutions drew criticism from Carl Leeman, president of the International Federation of Risk and Insurance Management Association (IFRIMA).
"The survey isn't representative of the bulk of risk managers," he said pointing to its disproportionate number (46 percent) of respondents from the insurance, banking and capital markets sectors, as well as the lack of differentiation between publicly traded and private companies.
According to Leeman, the survey places too much emphasis on regulatory compliance -- an element of the risk management function most prevalent in financial institutions and public companies.
"The emphasis given to risk management has grown everywhere but not to the same extent as the financial industry, because that was the industry that made the biggest mistakes leading to the financial crisis," he said. "Risk management has become a far bigger priority in the banking space, and among publicly traded companies, compared to pre-2008, due to new rules and regulations."
Leeman said the ongoing economic outlook is the primary daily concern for most risk managers, particularly small and medium-sized enterprises (SMEs), which are struggling to secure lending from banks.
"The economic situation is the top priority for the majority of companies, particularly in Europe, and I don't think that is really reflected in the survey," he said.
While Jeanne admitted that the issue of regulatory compliance is more of an issue among financial institutions, he argued that the key messages from the survey are applicable across most sectors.
"Of course, each industry has its own specific issues and various factors driving risk management, but we see a trend of increasing focus on the risk management function in all industries -- it is seen as a necessity in order to efficiently manage companies and improve business performance," he said.
Antony Ireland is a London-based financial journalist specializing in insurance and asset
management, who has edited and written for numerous insurance publications.
October 1, 2013
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