JOHNSTON, RI – A new study of Fortune 1000 chief
financial officers (CFOs), treasurers and risk managers across a broad range of industries
reveals more than 50 percent say their companies are not well-prepared to recover from a
“major disruption to their top earnings driver,” and less than 25 percent of
respondents believe their current contingency planning efforts are adequate. More than 75
percent of the nearly 200 respondents indicated such a disruption either would cause
sustained impact to their firm’s earnings or threaten their business continuity. The
‘Protecting Value Study’ was conducted by commercial and industrial property insurer FM
Global, the National Association of Corporate Treasurers and management consulting firm
Sherbrooke Partners to better understand the role and value of risk management in major corporations.
Most respondents indicated that property-related hazards
encompassed the majority of threats that could impact their firm’s earnings. Such hazards
reported included natural disasters, fire/explosion, terrorism/sabotage/theft,
mechanical/electrical breakdown or service disruption, rather than casualty-related or
other hazards such as product tampering or political risk.
Moreover, the study found significant differences in how
CFOs, treasurers and risk managers see the risks threatening their firms compared with
their superiors’ views. More than one-third of CFOs, treasurers and risk managers believe
their company’s senior management team lacks a complete understanding of the impact a
major disruption would have on their firm’s earnings and shareholder value, their level of
preparation for such risks, and what is covered by insurance in such an event.
Additionally, the study discovered a clear difference of
opinion between risk managers and CFOs/treasurers regarding contingency planning efforts,
underscoring the need for better communication between these groups. CFOs and treasurers
say they are less confident in their company’s contingency planning efforts and
consistently understated the scope of such planning completed compared with what their
risk management counterparts state. The results also indicated significant challenges have
yet to be addressed, including scenario planning and identifying production bottlenecks –
even though contingency planning is a core process now instituted across most of the
participants’ businesses.
On the insurance front, 50 percent of respondents from
companies with less than US$1 billion in sales report they have “fully
transferred” to others the overall risk associated with their top earnings driver,
including damage, liability and business interruption. In sharp contrast, only 26 percent
of respondents from companies with more than US$1 billion in sales (“Fortune
1000”) cited full risk transfer, while the remainder of respondents chose to retain
some risk on their balance sheets.
The comments of more than 80 percent of respondents
indicated they consider the events of Sept. 11, 2001, largely an insurance event,
underscoring the need for adequate coverage and thorough disaster-recovery plans.
“It is a mistake to overlook or under appreciate the
value of good risk management efforts,” said Ruud Bosman, executive vice president of
staff operations and planning at FM Global. “The results of this study indicate there
are real, ongoing property hazards that affect a company’s top earnings drivers. In
particular, the potential impact property-related hazards can have has become more
prominent as traditional insurance markets become less willing to indemnify all the
associated risks after Sept. 11.
“The Protecting Value Study serves as a benchmark that
financial executives and risk managers can use to convey the importance of prudent risk
management in addressing property risks. We encourage them to use these findings as a
framework for important discussions at the highest levels of their organizations.” To
download a free executive summary of the study results, visit
www.protectingvalue.com.
