CFOs are no strangers to risk management, but as the finance chief’s position morphs into that of a strategic leader, such competencies have become more sought-after.
Fifty-two percent of CFOs, in fact, highlighted identifying and mitigating business risks as a top need skill set, according to a recent survey by Travelers. That figure comes just under the 62% who highlighted strategic planning and ties with the ability to manage a network of internal and external stakeholders, the survey of 610 CFOs in insurance decision-making roles revealed.
The findings come as CFOs are seeing their responsibilities evolve to manage “not just financial risk, but also managing risk throughout the whole company,” said Joan Woodward, founder and president of The Travelers Institute, in an interview. The New York-based company provides a suite of insurance products, including auto, property casualty and cyber.
Cybersecurity education and preparation
As finance chiefs gain more responsibility over risk management, they need to juggle a number of ongoing challenges and risk areas that are buffeting their businesses. While the top three worries among finance chiefs are no surprise — economic uncertainty, market competition, and inflation — finance chiefs also pointed to cybersecurity, interest rates and public policies and regulatory compliance as major concerns, according to the Travelers report.
“Cyber threats are one of the biggest challenges to managing risk, and they're evolving,” Woodward said. “One day to the next day, there's different actors on the dark web trying to exploit your systems, and so you always have to stay ahead of that.”
Cybersecurity risks have loomed large in the minds of finance leaders as cybercriminals tap an emerging fleet of new technologies to try out new scams and attack vectors.
Scams such as deepfakes — which use AI to create false image, voice or video content — and ransomware have intensified in recent years, with 85% of companies in the U.S. and U.K. pointing to such schemes as an “existential” threat to their businesses, CFO Dive previously reported, citing data from a Medius survey. Fifty-three percent of businesses surveyed reported being the victims of such an attack, according to the survey results.
Ransomware attacks, meanwhile, have remained a favored tactic among cybercriminals, often with high consequences for businesses. UnitedHealth Group, for example, estimates the financial impact of a February ransomware attack could reach up to $2.45 billion, CFO Dive previously reported.
Though ransomware claims have risen “dramatically” since the COVID-19 pandemic, “there are preventable measures you can do to mitigate your cyber risks,” Woodward said. That includes taking steps to educate employees on emerging scams and cyber threats, she said.
“You educate your employees, you test them, you send them those phishing emails and see if they're going to click on them,” Woodward said. “Having a proper risk management system in place for cyber is important.”
Products such as cyber insurance can also help businesses ward against growing cyber threats, but before purchasing such insurance, “being proactive about protecting” the business is the number-one step executive leaders need to take, Woodward said.
“You have to know your risks, know about the hacktivists and the email compromise and ransomware” schemes, Woodward said, noting that before Travelers will issue a cyber insurance policy, it will work with companies to ensure they have proper “cyber hygiene” in place. Nearly two-thirds of their current risk management practices can be classed as proactive, according to CFOs surveyed by Travelers, with the remainder still reactive.
Customer retention optimism
The need to put a proactive risk management strategy in place puts even more pressure on CFOs, who are still juggling a complicated macroeconomic and geopolitical environment. Economic uncertainty and market competition tied for first place on the list of greatest concerns for CFOs — with each highlighted by 33% of those surveyed.
Though economic measures have improved recently, “while inflation has come down on paper, people do not feel it,” Woodward said. Inflation sank to its lowest level in three years last month, according to data from the Labor Department, making it more likely the Federal Reserve will slash interest rates — also among CFOs’ top concerns, per Travelers — at its next meeting, CFO Dive previously reported.
However, small businesses and consumers remain buffeted by cost pressures, and margins remain thin for many companies, only increasing the risks finance leaders need to juggle, Woodward said.
Still, while risks abound, finance chiefs have also reported areas of optimism. Forty-one percent of CFOs reported being optimistic about the financial stability of their companies, while 32% said the same of customer satisfaction and retention, according to the Travelers study.
“That tells us that (the) CFOs we surveyed have a good feeling about how they're serving their customers and meeting them where they want to be met, and that's a really important thing in today's world with how we do digital business,” Woodward said.
