Posted on 05 Oct 2009
Chief Financial Officers (CFOs) are playing an increasingly pivotal role in the risk management of their firm and setting best practice, according to a panel discussion this morning at Aon's Women in Insurance networking breakfast at the Federation of European Risk Management Associations (FERMA) conference.
In a world driven by financial metrics, key performance indicators are expanding to include a company's performance in managing risks, in addition to return on investment and cost of capital. Hence CFOs are being increasingly included in the development of strategic risk management processes and solutions rather than solely on the costs involved.
Aon’s Crystal Ball, predicting how the insurance and risk industries will evolve, sees CFOs escalating their effectiveness in terms of risk management. The global insurance broker also expects to see more companies appointing Chief Risk Officers (CROs). This role, working in partnership with the CFO, is helping to elevate risk management to the board and increase the standards of professionalism in handling the risks facing their organisation. CFOs are gleaning insights from their CRO on appropriate stress test scenarios and decision making processes, in particular, around mitigating the risks around investment portfolios and factors affecting cost of capital.
However, Aon’s Global Risk Management Survey found that 62% of risk management functions report into a CFO or finance dept so over a third of companies could be bypassing this crucial role.
At the session, Christa Davies, CFO of Aon Corporation, commented on her role in relation to risk management: "As CFO, my job is to manage risk for our firm and we have put in place solid business practices and a sound global finance team to manage risk holistically across the company. This is so we provide information in an efficient and effective manner to our business heads, and so that we can generate the best return on invested capital for our investors."
Ana Baranda, managing director and chief operating officer at Aon Spain, co-chairing the session, added: “Unpredictability was a key attribute of the global downturn and highlighted the need to adapt strategies that anticipate and respond to a changing landscape. As such CFOs are taking more responsibility within the risk management realm, for example looking at the cost of capital to judge and decide how they can offset risks to insurers for the appropriate price. The role is also extending to monitoring growth scenarios, such as expansion to new geographies and appraising the risks involved in these territories, and assessing the risks around outsourcing and the use of third parties.”
Marguerite Soeteman-Reijnen, chief broking officer EMEA for Aon Risk Services and co-chairperson, continued: ”CFOs would be able to greater protect their balance sheet if the insurability of risks increased. Supply and demand are subject to society's perception of risk. The past years have shown a steep increase in the awareness of the various risks corporations are facing. Only a small percentage of these risks however can nowadays be insured. The insurance industry and all respective stakeholders, including governments, must start innovating and investing to increase this proportion of insurability. Hence the supply of risk mitigation will enable our industry to meet our economic goals and demand from global businesses.”