Study sees link between ERM, higher credit rating

NEW YORK—A soon-to-be published Risk & Insurance Management Society study suggests a correlation between organizations with formalized enterprise risk management programs and those with higher credit ratings.

Beginning in December 2006, risk practitioners from 564 organizations participated in an in-depth assessment of ERM for RIMS’ “2008 State of ERM Report.”

Using RIMS’ Risk Maturity Model—which outlines best practices for developing and maintaining effective ERM programs—participants compared their organizations’ ERM activities to 25 metrics or so called “competency drivers” believed to be necessary for an effective, efficient ERM program.

Based on those assessments, the 2008 report found that organizations with formalized ERM programs scored 90% better in RMM index scores for all risk management competency drivers than did organizations without formalized ERM programs. And those organizations with higher RMM scores generally had higher credit ratings, the study showed.

“The study substantiates the value of ERM for organizations regardless of type of the organization and that a well-implemented ERM program is characteristic of a well-managed company,” said Carol Fox, senior director-risk management for Convergys Corp. in Cincinnati and chair of New York-based RIMS’ ERM development committee. “Given the current state of the global economic crisis, companies need to, at a minimum, take aggressive actions to institutionalize their risk management programs,” she said.

Ms. Fox noted that while organizations with ERM programs may be better managed, the study found that only 4% of companies that had ERM programs achieved the two highest levels of RMM in all their risk competencies. “What that tells us is that ERM is still in development stage,” she said. There is still a lot of work to be done.”

The report will be available next week. Survey participants can receive a copy at no cost. The cost for RIMS members is $250 to $500, depending on membership status and the cost for nonmembers is $750.

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