It’s time for businesses to take Risk on Board
05 October, 2005
New research published today by Lloyd’s and the Economist Intelligence Unit
Despite spending more time on risk management, board directors at global businesses are failing to identify and manage emerging risks effectively, new research published by Lloyd’s today reveals.
Lloyd’s, the world’s leading specialist insurance market, working with the Economist Intelligence Unit, conducted one of the most comprehensive surveys yet on how well organisations deal with new areas of complex risk. More than 100 business leaders from a range of countries and sectors were asked for their views on how well their organisations manage risk.
With new areas of risk such as cyber crime emerging and experts predicting that the impact of man-made and natural catastrophes will become more severe, the research found that:
* over half of companies had at least one ‘near miss’;
* one in three companies suffered significant damage as a result of failure to manage risk;
* the amount of time boards are spending on risk management has risen four-fold in the past three years;
* boards are now assessing a wider range of risks in the light of corporate scandals and regulatory intervention, but they are ignoring other headline risks such as terrorism and the weather; and
* despite recent terrorist attacks, less than half of companies are reassessing their risk management strategies. For natural hazards it is less than a quarter.
Launching the research, Lloyd’s Director of Worldwide Markets Julian James said:
“Today’s business leaders know that the likelihood of a costly risk management failure is high. Yet while it is encouraging that boards are now spending more time and resources on risk management, this research clearly shows that businesses accept they should be doing more to recognise and prepare for the potentially crippling risks that they face.
“Board directors pinpoint the insurance industry as the first port of call for risk management advice and it is a key part of the work of the Lloyd’s Market. However, the first step is for businesses to recognise the complex global risks they now face and put risk management at the top of their agenda.”
David Foreman, Chief Underwriting Officer at Lloyd’s insurer Wellington said:
“This valuable new research shows that risk management in firms is still being driven almost grudgingly by a need to meet regulatory demands rather than realising the full benefits it can bring.
“Whether the lack of preparedness to anticipate and deal with risk reflects misplaced confidence or ignorance is debatable. But until boards start to tackle these issues, risk management is likely to be seen by senior management as a constraint on their business, rather than the source of competitiveness that it should be.”
The findings also show that many of the problems that organisations face are structural as well as attitudinal. Although boards are paying more attention to risk management issues there is still great disparity in the way that organisations manage risk. Many are failing to embed a culture of risk management throughout the organisation. In only half of all companies surveyed was risk management centralised and two thirds of boards have not received training in either identifying emerging risk or implementing risk management across their organisations.
Notes for editors
1. To view a full copy of the report, follow the link: Taking risk on board - how global business leaders view risk (304kb, pdf): www.lloyds.com/index.asp?ItemId=10671
2. Julian James was appointed Director, Lloyd’s Worldwide Markets in December 2000.
He is responsible for all Lloyd’s commercial activities outside the UK, including the management of its 60 trading licences. He also oversees Lloyd’s global marketing and communications including: international advertising, media relations and political lobbying.
3. David Foreman is a member of the Underwriting and Claims Committee of the Lloyd’s Market Association and Deputy Chairman of Lloyd’s Japan Inc. As Chief Underwriting Officer of Wellington, David has overall responsibility for the underwriting of Syndicate 2020.
4. The Economist Intelligence Unit (EIU) is the world’s foremost provider of country, industry and management analysis. Founded in 1946 when a director of intelligence was appointed to serve The Economist, the EIU is now a leading research and advisory firm with more than 40 offices worldwide. For nearly 60 years, the EIU has delivered vital business intelligence to influential decision-makers around the globe.
Lloyd’s is the world’s leading specialist insurance market with a capacity to accept insurance premiums of more than £13.7 billion in 2005. It occupies sixth place in terms of global reinsurance premium income, and is the second largest surplus lines insurer in the US. In 2005, 62 syndicates are underwriting insurance at Lloyd’s, covering all classes of business from more than 200 countries and territories worldwide.
Lloyd’s is regulated by the Financial Services Authority.
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