ERM’s twenty years of growth

By Sonjai Kumar

ERM development is a relatively recent phenomenon that started developing around the year 2000. The COSO (Committee of Sponsoring Organization of the Treadway Commission) came up with ERM standards in 2004, while the ERM framework by ISO 31000 was first published in 2009. There is always a time lag between the standards framing up getting into use.

The academic research in the field of ERM started around the year 2000. As per the analysis of around 400 research papers on ERM, the first paper was published in the year 2001. Below is the graph that shows the development of ERM academic research at the global level.

The graph shows the development of the publication of ERM research papers from the year 2001. During the initial years, few research papers were published on ERM, this is quite obvious as the ERM development was in a very initial stage. However, post the 2008 economic crisis, the focus on ERM research increased that can be seen from the increase in the number of research papers publications. During 2009, the publication almost doubled from 13 to 22 and then increased in later years. The interest in ERM increased in light of the 2008 economic crisis as well as the introduction of the risk-based capital regime both in the banking and insurance sector.

In the risk-based capital, the banks or insurance Companies set aside capital based on the risk that is faced by the institution.  Higher capital is required if the institution takes a higher risk, therefore, the Board of the Company is varied in this fact and focuses on ERM that helps in reduction in risk and thereby reducing the capital.

The papers in 2021 are very small as this article is written in February 2021.

The data was also analyzed based on research on the country of the research.

ERM by country

The graph shows the top 10 countries in a form of publication of research papers. There is a total of 60 countries that have published papers on ERM, therefore, the other category has such a high number. In the top 10 list of ERM paper publications, it can be seen that only two Asian countries are there, one is Malaysia and the other is Indonesia.

As most of the development in the area of risk-based capital happened in the developed market, therefore most of the papers were written in those markets. It can be seen that most of the papers were written in the US (117) followed by Malaysia (34), UK (32), and so on.

It can be seen that in India only 8 papers on ERM is published over the last two decades. One of the key reasons for low publication in India is ERM is quite new in the country and the insurance sector risk-based capital is not there. Also, there are very few academicians researching ERM.

The key areas of academic research during all these years have been in the areas of banking, insurance, construction, environment, financial industry, and supply chain.

  • In banking, key countries are UK, US, Canada, Malaysia, Taiwan. The key reason for the application in this country is that they have Basel norm where the capital is a function of risk and ERM plays a very pivotal role
  • The application of ERM in the Construction industry is a very welcome application where most of the countries are in Asia such as China, Singapore, Malaysia, and Australia. It would be worth exploring the reason for the same further as this is a very non-traditional area.
  • The application of ERM in the environment are in Australia, Czech Republic, Turkey
  • The study on ERM itself has happened in almost all the countries but the US and UK are leading in this field. It can be seen that the study on ERM increased over the period.
  • As with the banking sector, the application of ERM in the insurance sector has mostly been in the US and the European Union. The risk-based capital has been in place in the US, however, the risk-based capital application increased during the latter half of 2010 lead to an increase in academic research on ERM in Europe.
  • Similarly, the application of ERM in the Supply Chain has been in the US and Europe.

ERM is a relatively recent area of research where development started around the year 2000 and its pace increased post-2008 economic crisis. The prominent countries where most of the academic research has taken place are the US, UK, Malaysia, etc. The key areas of research are banking, insurance, construction, environment, financial industry, and supply chain. The application of ERM is increasing is many other areas than the traditional financial market. It has been proven in many academic researches that how ERM helps in increasing the shareholder’s value. The wider application of ERM is a welcome sign. ERM is binding glue that combines risk management in one force across the Company.

Sonjai Kumar, Certified Risk Management Professional from IRM London, Ph.D. Research Associate, Fortune Institute of International Business (FIIB), New Delhi India. The views expressed in this post are the author’s own and do not necessarily reflect the views of IRM

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