Understanding and managing risk is increasingly a critical success factor for financial institutions, according to a report on financial institutions issued by Aon Risk Solutions, the risk management business of Aon plc.
Entitled “2014 EMEA Financial Institutions Industry Report,” the report highlights the top risk factors facing EMEA financial institutions and provides them with methods to manage these risks.*
“In today’s global environment, financial institutions face increasingly complex challenges ranging from regulatory scrutiny of risk and capital ratios, through to sustained economic pressure and rising litigation,” said Enrico Nanni, chief commercial officer, Financial and Professional Services at the Aon Global Broking Centre, and a key contact for the report.
“In addition, the concern around potential technology failures and constant threats of data breaches from cyber-attacks means the stakes for financial institutions have never been higher,” he said in a statement issued by Aon Risk Solutions.
Both the EMEA and global financial institutions surveyed agreed that regulatory/legislative changes followed by economic slowdown, increased competition and brand protection were the top four risk factors facing their industry today. Specifically, the report said:
- 67 percent of EMEA financial institutions say they have experienced a loss of income in the past 12 months due to regulatory/legislative changes, with 63 percent suffering as the economy slowed or stalled and 57 percent citing increased competition.
- 52 percent of EMEA financial institutions said that damage to their reputation or brand had caused them financial loss in the last 12 months, an almost identical result to respondents from global financial institutions (51 percent).
After the top four risk factors, the report said that EMEA and global financial institutions diverge in their concerns.
EMEA respondents revealed they are more concerned than their global counterparts with risks of technology or system failure (at number five on the FI EMEA list of risk factors); cash flow and liquidity risk (number six on the EMEA list); crime, theft, fraud or dishonesty of employees (seven); capital availability/credit risk (eight); failure to attract or retain top talent and business interruption (nine), and interest rate fluctuation (ten), the report said.
A majority of EMEA financial institutions have experienced losses as a result of the top four risk factors, while around one-third of these companies have also experienced financial loss in relation to the remaining risks in the top 10.
This particularly highlights the increased importance of operational risks when compared to financial institutions’ credit and market risks, the report said.
For 88 percent of financial institutions in Q3 2014, price was the deciding factor in their buying decisions. In the same quarter last year, this figure was only 62 percent, the report said.
“Last year, 36 percent were wedded to long-term partners – now the figure is just 10 percent,” it continued.
“This change in purchasing attitude presents a clear challenge to the insurance market,” the report said. “When engaged in strategic planning and reviewing their value proposition, insurers should consider whether to continue competing (mainly) on price for insurance products that no longer fulfill entirely the needs of ever evolving financial institutions or, alternatively, propose risk transfer solutions for some of the new and emerging risks.”
Other key factors considered critical by EMEA financial institutions in their buying decisions are financial rating/stability and claims service.
*The report is based on the Aon Global Risk Management (GRM) Survey 2013 and Aon GRIP™. Aon GRM compared responses between financial institutions in the EMEA region against their global counterparts, while GRIP was used to follow insurance purchasing trends.
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