Parima, Airmic and Ferma issue advice to industry professionals
The UK has headed into unknown territory after the country voted to leave the European Union. The results of the historic referendum on Britain’s membership of the EU which saw 51.9% of voters opt to abandon membership had huge and immediate implications.
Prime Minister David Cameron, who led the campaign for Britain to remain in the EU, resigned as stock markets around the world dropped sharply in response to the outcome of the vote. The value of sterling also plummeted against a range of currencies – falling to its lowest levels for more than 30 years.
The result will have enormous ramifications for businesses and risk professionals around the world. Not all the consequences will be immediate and many will be complicated and difficult to quantify.
Responding to the referendum, Pan-Asia Risk and Insurance Management Association board member Steve Tunstall said the next few years of uncertainty in Europe would result in slower growth in the region and have a knock-on effect in Asia.
“Whether other countries consider following the UK out of the EU and whether indeed the EU survives in its current form are critical low likelihood, high severity risks,” he said.
“Risk managers can help their CEO to think through the issues from a risk perspective. Companies in Asia will be closely watching how the UK manages its own transition out of the EU and those who chose the UK as a gateway to Europe will have to refresh their strategies.”
Tunstall added that the Brexit vote pointed to a “deeper social and political vulnerability that is perhaps also brewing in our own region”.
“The changing risk dynamics around this topic present a chance for risk managers to further position their strength in the corporate discussion on both the risks and opportunities that might arise.”
The Association of Insurance and Risk Managers in Industry and Commerce (Airmic) technical director Julia Graham said: “Before the referendum, the CBI indicated that only 50% of FTSE companies had made contingency plans for an exit vote and that there was a significant variance in levels of preparedness between sectors, with financial services well advanced and other sectors with some way still to go.
“The definition of risk typically used by organisations of ‘the effect of uncertainty on objectives’, recognises organisations often have to deal with risks they have little knowledge of by way of hard fact – Brexit is no exception.
“The Financial Reporting Council define a ‘principal risk’ as a ‘risk or combination of risks that can seriously affect the performance, future prospects or reputation of the entity. These should include those risks that would threaten its business model, future performance, solvency or liquidity’. Had this not already been the case before [the] momentous referendum result, the risks associated with Brexit must now surely feature on the list of principal risks for most organisations.
“A priority for organisations today is the creation or refinement of internal and external Brexit communications plans and the clear allocation of responsibilities for managing these.
“As with any risk that might affect the whole organisation, Brexit is an enterprise risk and the potential impact should be broken down by considering different areas of the business and the relevant risks including people, sales, regulation, law, finance, information, technology and insurance.”
Brussels-based Ferma president Jo Willaert added: “Our companies have been considering the possible implications of a UK departure from the EU since the referendum was announced, along with all the other external factors that can have an impact on the way we do business.
“We incorporate them into our enterprise risk management. From a risk manager’s perspective, regulation is one of the clearest concerns. There are also likely to be implications for insurance, especially global programmes. ERM is a dynamic process and we will continue to take into account the implications of the UK’s decision.”