Risk review: A relatively optimistic outlook for the European and US economies

A relatively optimistic outlook for the European and US economies, stable insurance rates and increased emphasis on risk management were among the key themes to emerge from the 2012 Aon Risk Symposium in Warsaw.

The keynote speech on the first day was given by a leading equity strategist from Barclays Wealth and Investment Management, William Hobbs, who suggested that despite the current volatility in the global economy there are many reasons to be optimistic about the future.

Mr Hobbs said, “At Barclays, we believe that the US consumer balance sheet is in qualitatively better condition than many suggest and with the US housing market likely to provide an increasing tailwind over the next few years, we see plenty of reason to be optimistic on the world’s most important consumer. In Europe, we see the ECB continuing to underwrite the Euro area project, providing the time for European policymakers to make progress towards eventual integration. Relative to the expectations we had at the beginning of the year it may surprise some to learn that it has actually been the emerging markets where most of the negative surprises have been. Europe seems to have stabilised at admittedly pretty depressed levels, but this isn’t that different from where we expected it to be at the beginning of the year.”

The symposium attracted a strong panel of speakers, representing a number of leading global companies involved in a variety of aspects of risk and including thought leadership presentations from Aon. The event ran over three days and focused on empowering results in risk and in people.

Insurance rates – no upturn yet

Victor Peignet, Chief Executive Officer, SCOR Global P&C stated that the market is stable but that conditions are not yet there for a market turn. He posed the question as to whether recent catastrophe activity may be an indication that the industry is basing models on wrong return periods. It may be that the reinsurance industry needs to reassess its appetite to put capacity at risk. He also outlined that price movements are beginning to see improvement. But that this is not consistent across the industry as each pricing and underwriting policy is individual resulting in renewal disbursement.

The event included presentations delivered by experts from the banking and insurance sectors from Barclays, United Insurance Company, ARUP, Chartis, InStar and the US Law Network as well as others who play a role in the identification, mitigation and financing of risk. Specific focus was placed on emerging markets, with leaders from Central and Eastern Europe, Brazil and Turkey contributing to a discussion on the relevance and potential impact of solutions that have been longstanding features of risk management strategies in other parts of the world.

Globalisation means greater emphasis on risk management

A key agreement amongst those present is that business is now truly global. Both US and Europe large corporates have global exposure and the same is true of emerging economies. At a breakout session, Jaap Veenenbos, regional director of Central and Eastern Europe for Aon Global Risk Consulting, said, “With the magnitude, scope and complexity of risk on the rise, the key for success and growth for leaders in emerging economies is to understand and mitigate the level of risk facing today’s organizations. The need for more effective risk management solutions will continue as globalization makes the world smaller, overseas investment in Poland and additional countries increase and regulatory environments evolve. We are proud to be hosting this event in Warsaw and to be leading the debate on these critical business issues”.

Throughout the event, a recurring theme of ‘Evolution and Not Revolution’ in the approach to risk management underpinned formal and informal discussions. Speakers and delegates shared thoughts on how quickly solutions from mature risk management markets such as U.S., UK and Australia could be introduced successfully to emerging economies. Many contributors referred to the next five years as being the period of time in which the risk management models in these economies would gain traction and become a core part of the business strategy of major organizations. Captive insurance companies are expected to be a key element of the strategy for many firms.

With sessions on supply chain and business interruption it was agreed that a systematic approach to risk management was needed with regular business interruption studies being undertaken to ensure that corporate systems and supply chain management remained robust.

The critical role of the risk manager

It was also agreed that the role of the Risk Manager is critical and that business organisations need to recognise risk as a competitive advantage. While there is increasing recognition of the importance of risk management, business leaders are increasingly requiring an analytical fact-based approach to risk. Companies are increasingly making use of captives for uninsurable risks. This enables companies to develop risk management and establish a track record before transferring some of the risk to insurers.