A new report by Marsh has found that some UK real estate firms are failing to address the strategic risks facing their organizations, leaving them more vulnerable to the vagaries of market conditions and in a weaker position in the insurance market.
Marsh said its newly released “Real Estate Industry Risk Footprint” report “details the 20 most commonly identified strategic, operational, regulatory, hazard and financial risks that feature in the risk registers of real estate firms in the UK.
“The report identifies that while UK real estate firms are managing the risks associated with projects and capital expenditure, many are overlooking the strategic risks which pose a threat to their organizations, such as counter-party risk and competition.”
Stephen Roberts, Leader of Marsh’s UK Strategic Risk Practice, commented: “Strategic risk accounts for an important proportion of the top risks facing organizations in the UK real estate industry. However, one of the common pitfalls in an organization’s risk management is that it focuses on operational risk and fails to capture and address the strategic risks facing the organization.
“It is clear from our research that while UK real estate firms excel at managing project risk, they are failing to capture the strategic risks facing their firms. By identifying and effectively managing their strategic risks, UK real estate firms can create a powerful commercial advantage by communicating confidence in their portfolios and conveying their comparative strength in the current economic climate.”
Marsh identified the following as the “most common operational, financial, strategic, regulatory and hazard risks to UK real estate firms:
— Inability to manage interest rate volatility
— Inadequate risk apportionment between joint ventures, consortium and sub-contractor partnerships
— Inability to appropriately manage third party liability
— Failure of a key contractor or partner
— Breach of environmental legislation or regulation
Nigel Salisbury, Leader of Marsh’s UK Real Estate Practice, added: “In the current economic climate, UK real estate firms need to assess their total risk footprint and scrutinize their uninsurable as well as insurable risks. Currently, insurers are paying more attention to just how well their clients are managing their risks, which links in to their insurance policy pricing.
“The insurance market for UK real estate firms is still very competitive and we are not seeing widespread rate increases that firms have feared, just yet. However, it is prudent for UK real estate firms to approach their own risk management with renewed vigor, as the benefits clearly extend far beyond saving a few pounds on their insurance premiums.”
Source: Marsh – www.mmc.com or www.marsh.com
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