Strong ERM programs mean higher market value, study shows

By Erin Ayers on April 28, 2014

New research shows that incorporating strong enterprise risk management practices can pay off, as companies that have focused on ERM report 25 percent higher market values.

Independent researchers worked with the Risk and Insurance Management Society (RIMS) to evaluate the benefits for firms that integrate “mature” ERM processes into both their corporate strategy and their everyday business practices.

The Journal of Risk and Insurance released the study, called “The Valuation Implications of Enterprise Risk Management Maturity,” which found that these organizations have a better handle on the “risk dependencies and relationships across the entire enterprise” than companies that do not employ ERM processes or have not done so for as long.

The data came from RIMS members over a five-year period from 2006 to 2011.

Looking at publicly traded companies in several industries, study authors Mark Farrell of Queens University Management School of Belfast (QUMS) and Dr. Ronan Gallagher of the University of Edinburgh Business School, noted that, “enterprise risk management is a growing area of interest for academics, especially in the post-financial crisis world.”

“One of the biggest challenges in implementing an enterprise risk management program is articulating the value that it brings.” said Carol Fox, RIMS director of strategic and enterprise practice. “This research makes that value link quite clear. Although the study necessarily focused on publicly traded companies, the value proposition of enterprise risk management applies to not-for-profits and the public sector as well.”

“Boards and ERM Committees now have an actionable internal roadmap and a corresponding return on investment measure to improve their enterprise risk management maturity from whatever level they are at today,” said Steven Minsky, CEO of LogicManager and developer of the RIMS Risk Maturity Model, which was used to evaluate the companies’ progress.'

Erin is an editor at Advisen. She has 15 years of journalism experience. Prior to Advisen, Erin covered property-casualty insurance for 13 years as editor-in-chief of The Standard, New England’s Insurance Weekly. Erin is based in Boston, Mass. Contact Erin at [email protected].