European power and utilities companies react to recession with cautious confidence

Over one third of senior executives at European power and utilities firms are highly confident in their existing risk management processes and are cautiously optimistic about the long-lasting effects of recession, according to new research commissioned by insurance broker Marsh.

Marsh’s research reveals that over 36% of participants said that they were “very confident” in their existing risk management processes, but 45% of those surveyed said the downturn has led to a reduction in risk appetite in their organisations.

Further evidence of a shift in risk attitudes is also evident in relation to risk management expenditure: 36% of respondents expect budgets to increase in the next 18 months, with 40% expecting some of the extra spending to go on insurance, either due to an expected increase in the cost of insurance or on more specialist lines of cover, and investment in risk management training and information systems was also ranked as equally important.

Despite being less directly affected by the recession than some other industries, Marsh’s research reveals that European power and utilities companies are keenly aware of its effects: 43% of respondents identified credit risk as a critical priority for the next 18 months; commodity price volatility is of critical concern to 18%.

Commenting on the research, Mark Pollard, Head of Industry Practices for Europe, the Middle East and Africa at Marsh, said: “The economic downturn has created two fundamental and interconnected threats for the power and utilities industry: a short-term decline in demand, driven by falling industrial activity across the region; and a reluctance on the part of both lenders and project developers to invest or to increase indebtedness in these uncertain times. This may also have a significant bearing on the sector’s ability to meet long-term demand expectations while meeting efficiency and renewable targets.

“Marsh’s research demonstrates confidence in the sector, which seems well-founded: future demand is assured and there is a sense across the industry that the downturn is a blip in its growth curve.

“Despite this optimism, the research paints a picture of a cautious industry, with a prudent, long term view of risk management. The power and utilities sector will have a fundamental role in the return to economic stability, and then to prosperity, during the coming months and years, given that it is essentially a public service industry. Risk management, now more than ever, is a critical element in the sustainability of a profitable and stable future.”

Marsh’s new report is called New risk management insights in the power and utilities sector. Senior risk and insurance professionals in 56 firms across Europe were interviewed.

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