The view from Europe

The last two to three years have brought significant changes in the way organisations approach risk—not least an increased appreciation for the risk management role in the light of the challenges posed by COVID-19.

Now, with war, climate change, cyber risk and ongoing effects of the pandemic all top of mind, the challenges look set to keep on coming.

“Supply chain disruption is a serious concern for many businesses, especially because of the war in Ukraine,” says Laurent Nihoul, group head of insurance at ArcelorMittal and a FERMA board member. “It’s a concern for everyone, not only those who have assets and operations in Ukraine, but with all the consequences that we will see in terms of economic impact and supply chain disruption.”

Carlo Cosimi, president of ANRA, the Italian association of risk managers, and head of corporate insurance at Saipem Spa, agrees that supply chain risk is a major concern.

“It’s the top concern in our community,” he says. “This is a very complex risk to tackle that arose during the pandemic, but also due to the war—and the sanctions situation is becoming more critical.”

Bart Smets, legal counsel–head insurance & risk at Umicore and board member at the Belgian Risk Management Association (Belrim), echoes these concerns about the war in Ukraine.

“Depending on the scale of your operations (national, regional or global) and the industry the business is in, the ‘ranking’ of the main risks will be different, but for a lot of our members, the current crisis in Ukraine and the geopolitical consequences will be top of mind,” he says.

“Cyber risk and the global supply chain disruption potentially causing slowdown or interruption of businesses remain top of the list, while climate change and in a broader perspective environmental, social and corporate governance (ESG)-related risks are climbing up the ladder and are without any doubt here to stay,” he adds.

Nihoul agrees, adding inflation and climate change to the list.

“People like to talk about emerging risk, but sometimes it’s not a new risk—it’s just the way the old risks are evolving,” he adds. He also highlights the interconnectivity of risks.

“For example, the war in Ukraine could have an impact on the food supply of the countries in North Africa, which could lead to social unrest,” he says. “These connections are everywhere and it can be difficult to assess all these interconnectivities.”

Smets adds that emerging risks are faster-moving and more interrelated than they have been in the past, making them more difficult to address before they become enterprise risks.

“It would be beneficial for every organisation to scan its risk landscape on a regular basis (eg, quarterly) for these emerging risks,” he says.

“The main challenge, however, still lies in how to assess these risks accurately and communicate them to the top in a clear and concise way, enabling proper actions to be taken.”

Cosimi notes that when it comes to supply chain risks, risk managers try to mitigate these exposures through diversification of suppliers and their geographical footprint.

“Other aspects are stronger contractor reviewing and using insurance products, when available, to transfer the remaining risks,” he says.

The hardening insurance market is, inevitably, an area of concern.

“We’ve had the triple crunch: pricing increase, shortage of capacity and underwriting restrictions,” says Nihoul. “Basically insurance cover has become poorer quality and more expensive.

“I don’t know any risk manager who is happier today than they were two or three years ago, because it’s much more difficult to place your programme and to keep your level of cover.

“I would say over the last two to three years insurance companies have been focusing only on their own challenge, which was to survive and rebalance their profit and loss. Now the market is still difficult, but it’s slowly coming back to a bit of stability.”

Smets notes that insurance and/or reinsurance is just one of the options organisations have to help them cope with risks.

“If the current market hardening does not slow down, organisations might question the use of insurance in the future for certain type of risks—and the first signs of this are already showing,” he says.

The role of risk managers

One phenomenon reported by risk managers since COVID-19 began is that there is an increased appreciation for the importance of risk management within organisations.

“In an increasing number of companies, risk managers are sitting at the C-level, and they’ve responded very well, because now risk managers have the opportunity to be more involved with strategy,” says Cosimi. “The risk manager has played a very important strategic role in the COVID-19 crisis, and plays an important role in ensuring good practice is maintained.”

In the 2021 Belgian Risk Management COVID-19 survey report created by Belrim in partnership with PwC, 81 percent of respondents indicated that risk management is high on the agenda and this is being driven by top management.

“Almost 50 percent of the respondents to the survey indicated that the risk management function had a seat at the table during the pandemic and took an active role in guiding the decision-making on measures to be implemented, and 30 percent of the Belgian risk managers still had a limited role,” says Smets.

The study also revealed that almost 80 percent of respondents were convinced that COVID-19 had resulted in a change in the “risk management mindset” in their organisation, mainly “in favour” of the risk management topic—and almost half of the participants expect an increased investment in risk management in their organisation.