Risk managers face more challenges than ever before

The world has become a more politically uncertain and economically fragile place in the past year, with knock-on effects on every corner of the globe. More than 100 delegates attended Commercial Risk Africa’s Risk Frontiers Southern Africa one-day seminar in Gaborone recently and heard speakers from across Europe and Africa warn of the many risks they need to factor into their business thinking and their business operations. Liz Booth reports on some of stories from the day Cyber risk does not just come from external threats but from within, delegates at the recent Risk Frontiers Southern Africa seminar were warned. With the theme of ‘Understanding the new normal’, the event organised by Commercial Risk Africa attracted more than 100 delegates from across southern Africa. They were told internal threats are often ignored at the company’s peril, particularly when it comes to cyber risks. Laurie Pieter-James, director, criminologist, forensic profiler at the Cyber Risk Institute, stressed that firms need to take an equally strong approach on both internal and external threats. Running regular checks on staff is essential, she said, in maintaining cyber security. Equally staff training is crucial. Too often, she said, she visits firms only to find that staff who left months before still have access to the office. Not only do their key cards give them access to the building, but often to the office IT system too. Staff will routinely leave their computers open while they take their lunch break – with senior managers often among the worst offenders. They will share USBs or click on suspicious emails without thinking first. Risk managers need to be alive to these simple risks and encourage good IT security habits from top to bottom of their organisation. Ms Pieter-James believes the insurance industry has a role to play in incentivising businesses to improve cyber security through premium pricing but says firms must wake up to the risk they face. Insurers can play a role in helping offset the cost of cyber attacks and, according to insurers from Allianz, Hollard and Lloyd’s who were in the room, insurance products are changing rapidly to meet customer demands. However, they collectively stressed that insurance is powerless without good, strong risk management. That, they said, starts with proper understanding of the risk. They are seeing improvement in this but agree risk managers, and their boards, still have some way to go. As Ms Pieter-James pointed out: “Cyber security is cited as one of the top concerns by less than 25% of small businesses today. Yet it is fast becoming the only way to do business.” If the problem is not taken seriously, increasingly there will be repercussions for businesses, whether or not they suffer a breach. Resilience through insurance “There is lots of risk, but not enough insurance,” warned Dr Trevor Maynard, head of innovation at Lloyd’s, particularly when it comes to the Sub Saharan Africa region, in which the lack of insurance has frequently been highlighted. Dr Trevor Maynard warned that, across Africa, only South Africa fell into the “better insured” category, with the rest of the continent under-insured. Aware of the massive protection gap, the United Nations has launched an initiative with seven targets to “prevent new and reduce existing disaster risk through the implementation of integrated and inclusive economic, structural, legal, social, health, cultural, educational, environmental, technological, political and institutional measures that prevent and reduce hazard exposure and vulnerability to disaster, increase preparedness for response and recovery and thus strengthen resilience.” As head of innovation, Dr Maynard said he is very much in listening mode as the insurance industry is aware it needs to offer new and different products to support the changing needs across the world. He also firmly believes that insurance has a vital role as part of any solution. Like Ms Pieter-James, he believes the growing dependency on the internet and associated IT poses a growing and unique threat. Mirroring the results found in the Risk Frontiers Africa 2017 survey, Lloyd’s has conducted its own research in which Dr Maynard said: “We surveyed 350 executives. 92% had suffered a cyber attack…only 42% were worried about future attacks.” He warned that this is extremely worrying, because cyber attackers are known to target companies that: Have information that can be exploited Are open to extortion – reputation/ service criticality Are vulnerable to fraud due to high volumes of trade. Like every issue facing business today, however, it is not that simple and the drivers are increasing the complexity. Dr Maynard pointed to regulations, such as the European Union’s General Data Protection Regulations, as well as the increase in litigation, particularly class actions. Added to that there is increasing supply chain complexity, making it ever harder to keep track of the whole chain, while the internet of things is simply adding to the risk burden. For him, there are some simple rules: Understand your own unique risk profile Prepare! Stay current, risk changes fast Culture counts: Employees targeted, risk awareness Call the experts (broker or insurer). The regulatory landscape is set to change rapidly Ignoring the changing regulatory environment is a dangerous thing, warned Sammy Makove, the newly retired Insurance Commissioner of Kenya. Mr Makove told the delegates that he was well used to seeing insurance ostriches – firms who simply hoped that, if they ignored it for long enough, the changes to regulation would go away. He also warned rhat praying was not an option either – appealing to a higher authority was no long-term solution, he said, nor was fighting against the changes, as ultimately both approaches would fail. Others believe that if they can delay changes, they will ultimately melt away – wrong, said Mr Makove. Being reactive is not a winning formula either, he said, because it will always leave the firm on the back foot, hurriedly making changes before falling foul of laws that they should have been aware of for some time. Instead, he suggested, firms should embrace regulatory change as part of their business strategy and make it work to their advantage. Kristin van Niekerk, head of legal and compliance at Allianz Global Corporate & Specialty Africa, added to his warning, saying that with the many impending changes in the regulatory landscape, firms need to move fast and proactively if they are to stay competitive. Being ahead of the game, said Mr Makove, offers a smooth and planned transitioning to new regulation. Firms “may use regulatory intelligence and policy insight to gain competitive advantage and will then be better positioned to stay ahead of constantly evolving regulation and the competition”. It benefits consumers too, he believes, as it means “at industry level, regulatory strategy will ensure an efficient and stable insurance market”. Ms van Niekerk stressed that regulatory change affects every sector and not just insurers. Risk managers across Africa, she suggested, should heed his words and look proactively at the changing regulatory landscape. She pointed to just a few examples in southern Africa, including the impending Cybercrimes and Cybersecurity Bill which has just been tabled in the South African parliament. The Bill applies to everyone, warned Ms van Niekerk and seeks to create a new set of cybercrimes and also imposes extensive cybersecurity obligations on electronic communications service providers, financial institutions, payments system institutions, and any company, entity, or person who owns or controls is declared by the Minister of State Security to own or control an information infrastructure which is declared to be critical information infrastructure. When enacted, she said, it will have far reaching implications for individuals and organisations, particularly those that process data, as well as for banks or electronic communications service providers. Ms van Niekerk said the new rules are far from limited to South Africa. Botswana too has plenty of change coming, as do countries across southern Africa. Delegates attending a roundtable on regulatory change at the event agreed that it is imperative to keep abreast of changes and as part of that training is key. They also said it was important to upskill existing staff but also to work closely with any business partners. African politics still poses major threat to business Political risk and political violence are two separate things, however one is often wrapped up with the other, which can cause major problems for businesses trying to operate across Sub Saharan Africa. Risk managers have been urged to develop a deeper understanding of just what political risk can mean and how political violence insurance is a separate thing. Bongai Muhau, general manager at FM Re, explained: “I think a lot of people talking of political risk are talking about the risk of investing in emerging markets, mainly Africa, Asia and Latin America. “But things have changed. Who would have thought a year ago that the Americans would vote for Donald Trump? That has probably placed the US higher up the risk index than, say, Botswana. “And then the British voting for Brexit. What I am trying to demonstrate is that political risk is a much more dynamic risk and it affects everyone globally. It is not really a location-specific risk. “Whether you are headquartered in the US or in Europe – it affects our daily business.” Mr Muhau continued: “We have two broad categories of risk – the hard one with violence in it and the soft one which relates to expropriation, nationalisation. These risks normally intertwine.” With his mining background, Zak Wood, director at Satarla, added: “One of the big things is really a question of cadence. If building a mine, we are talking about a 50-year or a 70-year project. So, if we are thinking in terms of those life cycles, politics has become so uncertain and so fast changing that it has become very difficult to predict what ownership in government will look like. “Also on top of our minds is around high levels of corruption. People operating in South Africa will be well aware of some of the reports coming out which show massive interference in business operations.” Frans Prinsloo, head international at Hollard, believes political risk will always have a major impact on the environment for business in a country where one does business. “As Hollard International, we have entered a number of countries in the past decade. We look at the political risk environment quite carefully before doing anything but, even if you have operated somewhere for a number of years, there are changes in those operating environments which have an impact – these could relate to currency, changing government, violence, accessing dividends on your investments etc,” he said. However, he also believes changes can also be positive if companies are prepared for those changes. Pieter Dingemans, national practice leader Marsh Africa, added: “The most common risk my clients are facing at the moment is currency inconvertibility, particularly in some countries in Africa such as Angola. It is just very difficult to get your money out at the moment. That is something happening on a daily basis.” In terms of where that is a problem, he said: “It is the usual suspects – trade credit insurers and analysts have political heat map and normally the same countries are coloured red. “Where people are interested in Nigeria, Angola Mozambique, you can find insurance but it can be difficult to operate. I am sure I am leaving a few counties out and it is not limited to three or four countries in Africa.”

Risk managers face more challenges than ever before

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