FERMA Highlights Captive Insurance Growth as Key to Managing Uninsurable Risks

A key sticking out of the soil with plants growing out of the key

October 23, 2024 |

A key sticking out of the soil with plants growing out of the key

Risk managers must embrace a proactive and strategic approach to risk management, according to multiple findings presented at the Federation of European Risk Management Associations (FERMA) Forum in Madrid and the release of the FERMA Global Risk Manager Survey 2024. FERMA President Charlotte Hedemark highlighted the importance of transforming risk management practices to navigate the increasing complexity of modern risks such as climate change, cyber threats, and economic volatility.

"The theme of this year's Forum is Join the Risk Revolution," Ms. Hedemark said. "This encapsulates the idea of embracing a transformative approach to risk management, moving from reactive methods to a more proactive, strategic, and integrated approach."

Ms. Hedemark emphasized that risk management should become embedded across organizations, with all stakeholders playing a role in identifying and managing risks. This shift is essential to maintaining resilience and seizing opportunities in an increasingly interconnected global environment.

The FERMA Global Risk Manager Survey 2024, conducted with PwC, extends its scope to over 1,000 respondents across 77 countries. The findings indicate a significant shift toward a holistic risk management framework that not only addresses immediate shocks but also integrates long-term considerations such as regulatory changes and climate adaptation.

Emerging Insurance Challenges and Captive Insurance Growth

The survey shows that risk managers are increasingly concerned about the insurability of certain risks, with 53 percent of respondents warning that key exposures may soon become uninsurable. Climate-related risks, cyber-attacks, and supply chain disruptions are at the forefront of these concerns. As a result, insurance strategies are evolving, with many organizations exploring captive insurance as a stable component of their risk transfer solutions.

According to the survey, 35 percent of respondents currently use captive insurance vehicles, with an additional 17 percent planning to create new captives in the next 2 years. Captives are increasingly being utilized for property, cyber, liability, and supply chain risks, reflecting their role in addressing both insurable and uninsurable risks.

"Captive insurance approaches are clearly evolving in response to the changing market environment," said Xavier Mutzig, FERMA board member and Global Risk Manager Survey lead. He also highlighted the positive impact of regulatory changes, such as the Solvency II amendment, on the European captive market.

Strategic Evolution of the Risk Management Profession

As organizations grapple with the expanding risk landscape, the role of risk managers is evolving. The survey highlights a growing shift from operational functions to strategic involvement, with 70 percent of respondents actively working on strategic risk response. This shift includes a broader focus on sustainability risks, with 57 percent of respondents involved in assessing environmental, social, governance (ESG)-related risks.

Additionally, risk managers are increasingly engaged in corporate strategy, with nearly half of the respondents reporting participation in board and executive committee meetings. The growing prominence of the profession underscores the need for risk management to align with corporate strategies, enabling organizations to navigate an evolving risk environment effectively.

Technological Investments and Future Priorities

The survey also notes that risk managers are turning to digital tools and technologies to enhance their ability to quantify risks, especially in the area of ESG. Investing in digital risk management tools has become a priority for the next 1 to 2 years, as organizations seek to better manage both current and emerging risks.

"Companies must adopt more integrated and unified risk management frameworks to manage such a spectrum of threats," Ms. Hedemark said. The report concludes that risk management functions will continue to mature, focusing on deep-dive risk quantification and scenario planning to adapt to the future.

October 23, 2024