As the accountability of the CRO increases within an organisation it’s important the CRO and CFO work together closely so the company can gain a better understanding of enterprise risk, says new FM Global research.

Following the release of a whitepaper from FM Global, which revealed CFOs are increasingly being held accountable for not properly addressing the risks posed by natural hazards, StrategicRISK sat down with Michael Stuckings, Operations Chief Engineer at FM Global Australia to find out what this means for risk managers. 

SR: What is the connection between natural disasters and the new dynamics between CROs and CFOs?

Michael: The impact of natural disasters on businesses and as businesses become more connected, the impact of those natural disasters, extends beyond what risk management would traditionally be associated with and it becomes a greater, overall business risk. The nature of it means it has to be a managing partnership between the CFO and chief risk officer or risk manager.

How has the accountability model shifted from solely CROs to a combination of CROs and CFOs?

Michael: In the last five years, we’ve seen the accountability of key risk decision makers, including CROs increase among large to medium businesses in Australia. As the accountability of the CRO increases within an organisation it’s important the CRO and CFO work together closely so the company can gain a better understanding of enterprise risk, enabling more informed and strategic decisions to be made about where to invest their risk management capital and efforts. The more embedded an enterprise wide approach to risk management along with an alignment of CRO and CFO accountabilities, the more resilient organisations become in responding to risk posed by natural disasters”.

SR: Sharing is not always easy. What advice would you give to CFOs and CROs to help them work better together?

Michael: I think the CFOs should be asking the risk manager about how those assets or how those exposures have been managed and what the insurance arrangements are in place to protect those risks. But, they also need to continue on from that and look at the whole picture in terms of total financial loss implications.

It’s a bit like the iceberg model. Insurance policies cover a portion of the loss but there are lots of aspects they don’t cover. The CFO is a conduit to the board, that person needs to make sure that they have very large accountability in this at stake, and they’re the ones that ultimately are going to be on the investor calls to explain losses on the books.

SR: Is this an issue unique to a particular part of the globe?

Michael: All parts of the world are exposed to natural disasters at various times so it’s really important for CFOs and CROs to work together to have a realistic understanding of the natural disasters they are exposed to, whether that be from flood, cyclones, earthquakes, tidal, etc all those sorts of things. And the key aspect, particularly with regard to natural hazards it’s not a matter of ‘if’ something is going to happen; it’s a matter of when. The chances of something occuring if you’re located in one of these zones, are actually quite high. It is really up to the CFOs and CROs to work together to minimise the impact on the business beyond just the traditional insurance arrangements.

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