Why and how insurance buyers should demonstrate effective risk management
Enterprise risk management has evolved significantly over the last decade, particularly given the risks of a changing digitalised and globalised workplace. Yet very few companies had the risk management scope to cope with COVID-19, which has now touched virtually every global economy. Many will now have to stop and revaluate the risk environment.
Benedict Burke, Chief Client Officer, Global Client Development, comments,
“Many companies will be re-evaluating business objectives to reflect the current economic environment, with performance projections and growth targets being reconfigured to align with a radically altered marketplace. During this time of considerable uncertainty and volatility, enterprise risk management will be a vital component of the recovery process.”
So, how can organisations re-assess their risk exposures to reflect the pandemic’s impacts? Key areas identified by our report are:
- Maintain network resilience. Given the disruption in our complex global supply networks, companies will need to maintain strict monitoring practices to spot weak links in the chain quickly – they may even need to consider more financially robust suppliers.
- Introduce sophisticated pre-loss scenario planning. The fact that companies, governments, and economies were caught off-guard by the scale, speed and intensity of the pandemic has highlighted the potential shortfalls in scenario planning.
Pat Van Bakel, president, Canada, responds,“While it is not a panacea – and, clearly, the scope and complexity of exposures generated by the pandemic demonstrate that no plan can be all-encompassing – what such planning can and will do if conducted effectively is help organizations prepare for a range of possible outcomes based on key scenarios.”
- Create a comprehensive ‘situation playbook’. This type of playbook not only gives clear guidance in responding to most scenarios, but can also form a crucial part of submission documentation/renewal negotiations (the ability to demonstrate a more advanced risk management approach can act as a differentiator in insurer discussions).
- Establish clear workplace reintegration protocols and restrictions. As employees return to work, the process will inevitably introduce new exposures not previously on the risk agenda. These include the risk of infection to employees/customers and heightened stress levels — and, ultimately, the potential for litigation resulting from failing in duty of care.
- Be aware of re-opening pitfalls. As businesses start to re-open, there is the potential for further losses. The re-starting process may aggravate risk conditions, such as corporate systems coming back on-line and machinery that has been mothballed for months getting fired up.
Veronica Grigg, president, Asia, remarks, “It may be a situation where the correct procedures were not followed when the equipment was shut down or re-started, or cases where OEM (original equipment manufacturer) guidelines relating to decommissioning or recommissioning machinery were not followed correctly, as this could affect claims for machinery breakdown cover.”
- Re-evaluate cybersecurity measures. For those organisations that are continuing with remote working practices, the transition to a mobile workforce has left them vulnerable to increased cyber-attacks. Many companies are now recording a significant spike in threat activity, such as phishing and ransomware.
As well as the increased scrutiny of insurance buyers’ risk management, there will also undoubtedly be a critical examination of the performance of policy coverage. Companies are presently assessing the overall scope of current programs in the context of a changing business environment, a rapidly evolving risk landscape, and the refocusing of business objectives.
To read more about what the pandemic means for the insurance industry, read our detailed report called Responding to a market in flux.