News and comments from the Federation of European Risk Management Associations

International survey on risk management standard

Risk managers and major businesses throughout Europe are being surveyed on their adoption of the European risk management standard and their methods of implementation. FERMA, Ernst & Young and Axa Corporate Solutions are jointly sponsoring the survey, which will be distributed to FERMA members and more than 5,000 of the largest corporations in Europe.

The results of the survey will be published at the FERMA 2004 seminar, which takes place in Brussels on October 5. An independent agency is carrying out the survey and individual replies will be confidential.

FERMA's aim, explains chairman Thierry van Santen, is to find out the extent to which the standard is really being used and how it is being applied. FERMA then wants to measure the way the use of the standard develops over time by repeating the survey, probably every other year, for comparison.

In 2003, FERMA adopted the standard, developed by the three risk management associations in the UK and published in 2002, and arranged its translation into other European languages. It is now available in Danish, Dutch, French, German, Italian, Polish, Portuguese and Swedish.

In addition to reporting the survey results, the October seminar will include a roundtable discussion for members on international risk management standards.

A second roundtable will cover the rapidly developing subject of risk and corporate governance to allow risk managers to discuss topics such as the role of the audit committee and of the board in relation to risks.

The seminar, unlike the biennial Forum, is for members only, but FERMA expects to publish the survey results and a report of the proceedings afterwards.

The 2005 Forum in Lisbon on October 2-5 will be on the theme 'Europe, the World and the Future: Opportunities for Risk Management'

New members

FERMA has accepted into membership risk management associations from Russia and Sweden and a number of new individual members from a growing number of countries.

RussRisk and SWERMA bring the number of countries active in FERMA to 12 and the number of member associations to 13, since there are two German associations. The Portuguese Association, which is hosting the next FERMA Forum in October 2005, APOGERIS, became a member in October 2004.

The new individual or adherent members include risk managers from the Czech Republic, Poland, Canada and the US. FERMA decided in 2004 to welcome individual membership from countries like Poland, where the risk management community is not yet large enough to sustain a national association.

Environmental liability, insurance and FERMA

Pierre Sonigo writes

The implementation of the new European Directive on environmental liability is only one step away. The purpose of this directive is to cover prevention and remediation of environmental damage. Some of the key features will considerably increase the potential financial liabilities of industrial firms. For example, the definition of environmental damage has been widened to include biodiversity damage. What does that mean? In a recent case in France, a chemical treatment used in agriculture killed millions of bees. Under the new definition, the worth of a bee would have to estimated and the producer of the product would be fined to pay the equivalent damages.

It would be the same for fish, birds, plants, trees or any other living species affected by an environmental incident.

Another feature of the directive is the implementation of a strict liability, where no fault or negligence is required, for industrial firms performing certain types of operations. If damage exists, as defined above, the business suspected as the origin would have to pay even if it conducted its business in full accordance with all regulations, and best practices.

A sticking point for industry representatives was to accept these risks only if they could find adequate insurance to cover them. Unfortunately, the insurance market was not ready to provide such coverage. So the European Council proposed a mandatory insurance scheme for each member state, where insurers or a pool of insurers, where requested, would offer environmental liability insurance for everyone, and buyers would have been obliged to purchase cover at any cost. This did not go down too well, and insurers and insureds both expressed their strong disagreement.

The European Council eventually postponed the requirement for mandatory insurance and has given member states, the insurance industry and insurance buyers five years to develop financial security instruments and markets for dealing with environmental impairment.

Regulating risk management

The concerns of the UK risk management association AIRMIC over possible statutory regulation of some of their members' activities is unique to the UK, and results from the way that the UK government is implementing the European Insurance Mediation Directive, FERMA believes.

It currently appears that some group risk management activities could fall within the regulatory scope of the UK's Financial Services Authority (FSA) when it begins regulating certain insurance sales and administrative activities from 14 January 2005.

The governments of other FERMA member companies are approaching implementation of the directive in a different way. In Germany, where there are many in-house brokers, the DVS believes that there is a good case for exempting brokers handling only their own company business.

SPEAKING OUT FOR RISK MANAGERS

FERMA spends a considerable time representing members' views on developing European Union legislation. For example, it regards as a significant achievement the concession for captive reinsurers in the draft Reinsurance Directive.

The EU agreed that captives writing business only for their parent company should not have to meet the same solvency requirements as a conventional reinsurer.

FERMA also contributed risk managers' views to the work of the group of experts to the European Commission who have just published the Financial Services Action Plan (FSAP) aimed at improving the freedom of insurance services in the EU.

For example, FERMA welcomes moves to harmonise insurance taxes for industrial risks across the EU, which would reduce the administrative burden of complying with the complexity of national regimes. It will comment on the FSAP which the Council of Ministers aims to use as the basis for revisions to insurance directives.