As the world seems to lurch from one crisis to another, risks to businesses multiply and expand, and the insurance sector is still in the grip of a hard market, are we hitting a high point for risk management and the role of the risk manager?
It certainly feels as though the management of risk has never been more important. Of course, this has been claimed often in the past, but the last couple of years, and the current global environment, suggest that risk management is at a peak.
Shareholders, boards, the public – all are wanting answers as to how risks are being managed and covered financially. The list of threats to business is endless and growing, and many are global in nature, requiring coordination and a holistic approach. Climate change, increasing nat cats, cyber and ransomware attacks, social inflation, class actions, political violence and terrorism, war, pandemic – it’s a wonder a risk manager has time to sleep.
But it is also a time for the profession to shine – to take advantage of the apparent chaos in the world, to show the value of a coordinated, multinational approach to risk. Businesses have been hard hit by the economic fallout from the pandemic, but the range of risks and threats, combined with a hard insurance market, would suggest that investment in loss prevention and risk mitigation should be an easier sell than in the pre-Covid days of soft markets and ever-expanding globalisation.
The hard insurance market, a thing of its own and often unrelated to economic circumstances, has added to the focus on managing risk properly and effectively. Increased retentions, whether forced or voluntary as a means to mitigate the rise in insurance costs, will have given added impetus to improving the risk.
And what is clear from the current market conditions is that pricing is very much related to the quality of the risk. Again and again, in all regions and lines, the message is clear: insurers are interested in good risks with good information – that is where they are deploying capacity and where price increases are diminishing, sometimes to the point of being flat.
There appear to be two markets currently. A relatively flat market, or at least with low single-figure rises, for non-cat-exposed accounts with clean loss history, or those with large retentions, or captive involvement at a high level, or excess layers. For others, the hard market rolls on.
There are of course storm clouds on the horizon – inflation is now a major concern, both for property and business interruption, and for casualty. The war in Ukraine could carry on for some time and the repercussions for much longer. Class actions, or at least, collective actions appear to be on their way to Europe, while nuclear verdicts proliferate in the US.
Nat cats are not only getting more common, more destructive and more costly, but also more difficult to predict and model. Climate change is now a concern to most businesses, not least the threat of climate litigation. Supply chains are increasingly under threat as the whole globalisation model comes under threat from war, political upheaval and pandemic.
And so the role of the risk and insurance manager becomes more crucial every day. This is a major challenge to the profession but also an important opportunity. There will be greater visibility, greater scrutiny and far greater interest from boards. Whether this manifests in greater funding and awareness remains to be seen, but the opportunity is undoubtedly there.