Adapt, pivot and rapidly evolve to survive and prosper, advises Parima’s Tunstall

Steve Tunstall is general secretary of the Pan-Asia Risk & Insurance Management Association (Parima) and director of Tunstall Associates, based in Singapore. He was one of the founding members of Parima, along with Franck Baron, Kelvin Wu and the team when it was launched at its first conference in Singapore back in April 2013. Mr Tunstall is a business risk management expert with almost 30 years' experience of both running companies and helping them change. He has been the head of risk and insurance for Genting Singapore and Cathay Pacific Airways, and held the post of managing director or equivalent in five companies in four countries. Commercial Risk Asia editor Adrian Ladbury was honoured to host Parima’s first conference and first met Mr Tunstall during a very different era when lockdown was not even imagined, trade relations between the US and China were relatively normal and the soft insurance market appeared to be simply the way of things. As part of the Asian leg of Commercial Risk’s annual Risk Frontiers survey, sponsored by HDI Global and Brokerslink, Mr Ladbury now talks to Mr Tunstall about how he feels the Asian risk management community has coped with the crisis; what risk, business continuity and supply chain lessons have been learned; and what Parima members need to do to prepare for increasingly tough insurance renewals ahead. Adrian Ladbury (AL): Were you surprised at how seemingly unprepared for this pandemic the world appeared to be, given that there were so many warning signs in recent times, such as SARS, MERS, ebola and the like? Asia seems to have coped better with the crisis than Europe and the US. Why would this be so? Steve Tunstall (ST): The truth is that half the planet did not match Asia’s response. The region was better prepared and responded more quickly. I was managing director of engineering group Jardine Schindler Group based in Singapore in 2001-2004 when SARS hit. We learned a lot then and more companies made plans to deal with future crises. The same occurred when bird flu hit the region. Awareness of these risks has been high for a long time in Asia at corporate and personal level. I feel China is still something of a 'black box' regarding its response, but nations like Taiwan, South Korea and Japan have all taken it in their stride. Asia is generally getting on without quite the shock and trauma seen in the west. You also have to understand that there is a different contact culture in large parts of the region. You are very much less likely to make physical contact – through shaking hands and the like – than you would in Europe; and if contact were made, people are much more likely to wash their hands. So, there are very simple ways in which the impact has been managed. If you consider Africa too and its seemingly lower death rate, then that is surely in part down to the much younger population. In Nigeria, for example, some 60% of the population is under 24 years of age, whereas the population in Europe and North America is much older and arguably much more vulnerable. And don’t forget the impact of different types of healthcare systems. If surgeries and hospitals are being paid significant sums by government for dealing with Covid-19 patients as in the US, then perhaps the numbers of reported cases are likely to be higher. AL: Have Parima members been at the centre of the response to the pandemic in your experience and through contact with members? Do you think it has raised the profile of the profession in the Asia-Pacific region? ST: It is difficult to generalise on that point, because it depends on the role of the individual within the organisation and the sector that they work in. I know some risk managers who lost their jobs because of Covid, or their roles have been substantially changed. But generally speaking, I believe that risk managers have disproportionately benefited from Covid in terms of the focus on risk strategies. It is something of a 'told you so' moment really, as risk managers have been telling their colleagues year after year that business continuity programmes need to be improved and updated, and the right technology is needed with the right security to deal with a situation like this. Most risk managers have seen that their IT systems have shaken but not fallen, but there have been a lot of challenges. Strong solutions, longer-term planning and additional investment are all needed. But overall, you have to say that this is a good time for risk managers – a good time to show the important role that they play in the organisation. Risk managers do not just bang on about what can go wrong, they also have a positive role to play and are in a key central position to help steer the company through such a crisis. To succeed, the risk manager needs to be at the heart of the operations team – they can’t go off and do their own thing. All the senior management has to work extremely closely in such a crisis and I think corporate culture is changing for the positive in this respect. AL: Which types of companies have risk managed their way through this crisis better than others, in your experience? ST: Those that were able to pivot, change direction swiftly and nimbly, and shift their business to where the value lies. Multinational companies have had to work very efficiently to adapt as needed and at pace. This is not easy. It is one thing for a pub to start delivering home meals because they can’t open to the public, but it is different for a company with 100,000 employees. Those that are naturally nimble, and technology based, have survived and prospered; but those old-school companies that are too cumbersome will start dying off. The super apps are really taking off here in Asia and are a good example of companies moving quickly to meet consumer demand in new ways. They are already moving into financial services and insurance. The incumbent banks and insurers have to ask themselves: where do we go from here? The bricks-and-mortar era appears to be over and that shift has definitely been accelerated by the pandemic. AL: What impact will this crisis have on the way supply chains are managed? Surely this has shown that supply chain risk is fundamentally too high and needs to be addressed? ST: I don’t think supply chains will ever be the same again. It’s not just Covid doing that but it does act as a further wake-up call. For now, the just-in-time approach looks like a bad idea. It is not just about how robust the chain is but also availability of backup and alternative supply chains. This was all being thrown into question by the ongoing trade war between the US and China, especially since President Trump came into office. Big US companies that previously manufactured in China are having to ask: where are my alternative supplies and backup? And it’s not clear that this would change under Joe Biden’s leadership. Likewise, a lot of Australian companies are suffering because their politicians have been making grandstanding statements about China. But many leading Australian companies rely on China, so this is a real problem that needs fixing. And it’s not just about manufacturing. A lot of finance has flowed into Singapore from China and Hong Kong as a result of the repositioning. There are likely many beneficiaries across southeast Asian countries. Many of these countries offer alternative solutions in many sectors and could really make a mark on the world economy as a result, going forward. AL: What is your impression of the reaction of the corporate insurance market to the crisis, from your contact with clients and Parima members? How could and should risk and insurance managers adapt to the new conditions? ST: I do not think that many CEOs and boards were surprised that pandemic risks were generally not covered, other than specific sectors that were directly hit such as events and hospitality. Pandemic cover has been available for some time and the decision whether to buy or not was the same as with all other risks – hold or transfer, depending upon the economics. Until 2020, it usually did not make sense as a buyer. I’ve looked at a pure pandemic insurance proposition in the past as a risk manager but decided we would be better placed to hold a buffer on the balance sheet. The discussion about cover for this risk and business interruption coverage in general is part of the wider trend in the market of shifting from traditional physical asset-based insurance, to cover for non-physical risks. So far, we are seeing less comprehensive insurance solutions for liability areas such as cyber and legal risks. The insurance industry needs to accelerate its efforts on finding more complete solutions. I don’t see solutions evolving as quickly as client needs, and Covid has simply magnified this challenge. AL: Does this apparent rising level of uninsurability mean that we need more public-private partnerships as the commercial insurance sector struggles to keep up with the pace of change? ST: The level of uninsurability is definitely rising. When I started as a risk manager, I could insure about 25% of the risks of the company; now I would say that this level has dropped, on average, to perhaps as low as 10%. The big one is technology because there is no comprehensive cyber cover, although we are getting solutions that are much closer. The problem is that the trigger is geared to the needs of the underwriter and not the risk manager. We have come a long way but not far enough. I had a really interesting conversation with Lloyd’s recently, as it proposes a different mindset in such cases, including real partnerships with government – which is surely the way to go. The problem is that the industry as a whole is not engaging sufficiently with governments or customers to make a material difference. It needs greater collaboration but I am not sure how this will happen. AL: Do you think state-backed pandemic schemes are an answer? Will this happen in Asia? ST: Asia is a lot further behind in this sense than Europe or the US. Like all things to do with insurance, everyone wants to claim, but no one wants to pay! The fact is that we have not had so many risk managers in Asia demanding that the insurance market picks up the Covid bill as in the US and the UK. While this is still quite an immature market, people do understand that they need to pay the premiums in the first place to get the payback. So, the insurance market has not been accused of failing here, but at the same time it is not really seizing the moment to radically provide solutions for the future. AL: We face tougher renewals than seen for a long time and many younger risk and insurance managers have never experienced a hardening market. What is the best way to prepare and ensure you secure the best possible terms and conditions in such a market? ST: There is always a case for risk managers to position their risk in as good a light as possible while remaining open and fair. Be at the front of the pricing envelope. The Asian market has taken longer to react than other regions of the world but now it is a hard market here too – and as hard as everywhere else. This is a really huge wake-up call for a number of risk managers, as a hard market like this has not been experienced since 9/11. Any risk managers who have built their careers on delivering insurance cost savings year after year will have a problem and will have to think very differently. The trouble is that there is very little experience of such a market among both risk managers and brokers, so it will be hard to square the circle this year as there is not enough capacity in many lines of business. AL: Many leading risk managers in Europe have publicly criticised the insurance market for its response to the crisis and clumsy and sometimes brutal way in which recent renewals during the hardening market have been carried out. Do you sense a similar feeling of anger or unrest among Parima members? ST: I do think there is a lot of disappointment among risk managers. The insurers have been calling to work with them for a long while on a partnership basis with long-term relationships, which means you support each other through the good times and bad. But in 2020 this has not really happened, and it has left a bad taste as many of these supposed long-term relationships have rapidly unravelled. There has been a lot of capacity in Asia for a long time and suddenly it is becoming scarce. To a point, this is a natural part of the cycle and admittedly some coverage has been underpriced for a long time. But this has been a dramatic rebound and change in tack from the insurers. In some cases, it even feels like revenge. AL: Is it time for the Asian risk management community to finally embrace captives and other alternatives such as capital market solutions? ST: We have definitely at long last seen a surge of interest in captives in Singapore and Labuan. It comes from a low start point but is quite significant growth in percentage terms. A lot more people are also looking at alternative risk transfer mechanisms and different models such as long-term agreements by single lines or multi lines to try and defray some issues. I spent a lot of time looking at potential parametric solutions but they still remain difficult to implement and often look expensive. But this is definitely an area where there are more opportunities to come.

Adapt, pivot and rapidly evolve to survive and prosper, advises Parima’s Tunstall

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