FERMA’s President on the Risk Managers’ Role, Transparency, Innovation

By | October 6, 2011

Peter den Dekker has been a busy man. However, the President of the Federation of European Risk Management Associations* (FERMA) took time out to talk to the IJ on the expanding role risk managers are playing in these troubled times, and what he sees as the future for risk management.

Companies in Europe increasingly realize that risk management is an important component of corporate governance, which has led to an expanding role for risk managers. They are no longer seen as just “insurance buyers,” but have assumed responsibility for analyzing and reporting on what risks their company faces – some of which could be large enough to actually sink the enterprise.

Being a good risk manager now requires a lot more skills. “One of the most important things you need is to speak the language of the board [of directors, or management],” den Dekker said. “And that means that you have to have some kind of financial background…a lot of good communications skills, and common sense is so important.”

He explained that although it’s possible to make things very complicated, in most cases “it comes down to simple things,” which in turn makes it easier to explain to a board what the problems are, and what steps may be needed to address them. It also depends on what type of company a risk manager works for. Den Dekker said: “Sometimes you need a legal background; sometimes you need a more business administration background.”

A risk managers’ role also means they need to “dare to ask questions; dare to challenge. Ask the right questions so that the ‘risk owners’ in your company understand what the real issues are, and how they need to manage their risks.” In addition risk managers should not be simply “devil’s advocates,” but should also identify “business opportunities.”

That function has become of increased importance in these troubled times. “All disciplines are under stress, not just risk managers” den Dekker said. In these circumstances company CFO’s and treasurers are the ones most under stress, as they are responsible for managing cash positions, “cash is king.” Risk managers can play a part in making “a lot of short term decisions to prevent a crisis, or to get out of a crisis situation.”

Turning to a more finite issue, den Dekker discussed the agreement between the European Federation of Insurance Intermediaries (Bipar) and FERMA to provide for greater transparency. Although the agreement “has been concluded and signed,” it has not yet been accepted as part of the European Commission’s revised Insurance Mediation Directive (IMD), “as FERMA has asked.” If the Bipar/FERMA agreement is adopted as part of the IMD, it would become binding, rather than depending on the goodwill of the brokers to abide by the agreement’s terms. “Then it would be not just a voluntary agreement,” but would become a directive that each EU country would be required to implement.

The EC is currently reviewing the documents and statements relating to the implementation request, and “I think we have a strong case,” den Dekker said. However, he also noted that even though Bipar has signed the agreement it isn’t actively supporting its inclusion into the IMD. As Bipar represents brokers of all sizes from the very large to much smaller firms, “they have a much different membership base than FERMA,” which deals almost exclusively with large brokers and re/insurers. He also stressed that “we are not a regulator…what we want, and we are not prohibiting anything, is transparency and disclosure.” It remains unclear what the EC’s decision will be.

Den Dekker’s irritation with reinsurers’ and brokers’ fixation on rates has been widely reported, and he hasn’t changed his mind. “Every insurance newspaper I open, and it doesn’t matter when – is it after or before a hurricane, or a loss – they’re all talking about the price is stable, no rate hikes expected – it’s a soft market; it’s a hard market. Why are we talking about this? It leads to nothing”

He has little patience with arguments from insurers and reinsurers that the “price is not right,” but he does recognize that they “want to make a profit.” It shouldn’t be too high, but certainly sufficient to “make sure they are there in the long run, because this is a long term business that we are in. We buy security, and they sell a promise to pay in – whatever – one year or ten years.

“I think we should talk about solutions, the availability of capacity and the availability of innovative solutions for certain issues that we have like contingent business interruption. That’s much more important than just talking about cheap or expensive prices.”

Finding solutions for situations involving supply chain disruptions, and contingent business interruption will require companies, insurers and reinsurers to examine the issues together, den Dekker explained. They are no longer emerging risks, but real ones to be faced. “The emerging risk is when it’s going to happen, and how big is it going to be? We need to identify the risks within our company and our suppliers, and the suppliers of our suppliers, which is very difficult. We do not all have the tools and the knowledge to identify these risks.”

He pointed out that the reinsurers, who use models to evaluate risks, especially cat risks, “are complaining about a lack of information that they get from us, and we are a little bit uncertain as to what they need, and can they help us to identify this so we can come up with a solution. The concept of interactive participation by all parties involved will be essential in finding those solutions, and the insurers “should not lose sight of their original client. We need to talk to one another.”

Solving problems like the ones above will mean that “FERMA’s role will only become more and more and more important, because the profession is becoming more and more important,” den Dekker said. “We need to facilitate our members and the further development of the risk manager, and also to assist a little bit in the educational part of the risk manager – their requirements and competencies.”

He also explained that risk management in one for or another has been around for a very long time. What is happening now is that it is becoming more “formalized.” This does not mean that it should be made more complex. But risk managers will take on more “responsibilities and more visibility.” They will in many cases become corporate officers.

FERMA members now consist of about half of the countries in Europe. Its ongoing role will continue to consist of helping countries improve risk management skills and to build awareness of the kind of help risk managers can provide, and those companies need.

“FERMA is going to be a real serious partner, along with its member associations,” den Dekker said. As far as individual risk managers are concerned it “will not be a one size fits all role. It’s a role that you should see as connected to the activities and the risk profile, the size and the region of the company the individual works for.”

*Wednesday, October 5, was den Dekker’s last day as FERMA president, as his two-year term expired with the closing of the conference. Jorge Luzzi is FERMA’s new president.

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