Key Personnel Loss Worries RMs, Survey Says

International risk managers see human capital risk, such as skills shortages, succession issues and key personnel loss, as the most significant threat facing their business operations, according to a new study.

The survey of 218 executives, conducted by the Economist Intelligence Unit, was sponsored by the ACE Group of Companies, IBM and KPMG.

The poll found risk managers view human capital risk as being more significant than threats from reputational risk, information technology risk, political risk and regulatory risk. Natural hazard was viewed as the least significant risk.

The top-rated risk is a change from last year's poll, when reputational risk was perceived in the Economist Intelligence Unit's quarterly risk barometer survey as being the biggest threat that respondents faced.

Despite acknowledging the importance of the skills issue, just 32 percent of the survey respondents said they manage human capital risk effectively, according to the survey. The only areas where respondents said they feel less confident are risks associated with terrorism and climate change.

On a scale of one to five, with five being "not at all effective," 10 percent gave their company's management of climate change a five, and another 10 percent rated their firm's handling of the issue a four.

The survey group included a wide range of industries and regions, with roughly one-third each from Asia and Australasia, North America and Western Europe. Approximately 50 percent of respondents represent businesses with annual revenue of more than $500 million.

John Keogh, ACE Overseas General chief executive officer, noted that few respondents think they are managing human capital risks effectively, and much work needs to be done in understanding and establishing an approach to deal with such risks.

Other key findings of the report include:

o Corporate stakeholders are demanding improvement to risk management. Efforts in risk management are being driven by internal and external factors. The board is seen as the most important internal driver for strengthening risk management, while the main external drivers are the demands of regulators and investors.

o The risk management function has evolved to become a core area of business practice, driven by the board but embedded at every level of the organization. Respondents identify strong culture and awareness of risk throughout the organization as the key determinant of success.

o More companies are creating a chief risk officer position, most notably in the financial sector, where two-thirds of firms have appointed, or plan to appoint, a chief risk officer, the survey found.

o Firms of all sizes and in all areas of the world are planning to increase investment in most areas of risk management over the coming years, suggesting that this business discipline, although evolving rapidly, will continue to expand and deepen its reach within organizations.

The fact that specific risk events, such as product recalls or fraud, are only third on the list of internal drivers for strengthening risk management and are cited by just 32 percent of respondents, suggests that risk is increasingly being seen as an integral part of business within organizations--not "just a function whose role is to plug holes as and when they appear," the report stated.