Airmic moves to help members cope with huge pace of change

Risk management and corporate governance are struggling to keep pace with the huge speed at which business models are evolving, according to Airmic’s chief executive. Speaking to CRE ahead of this year’s Airmic conference, the association’s CEO, John Ludlow, said technological transformation is now well and truly under way as he described the theme of this year’s event in Liverpool, The Future is Now. “Technological change is happening, but more important is the impact of this transformation on business models and how businesses go about embracing this change,” said Mr Ludlow. Companies are increasingly reliant on IT systems, which are now omnipresent and increasingly shared or outsourced, rather than owned, said Mr Ludlow. “Companies have to keep up with changes in technology. But with each change to a critical system, the organisation’s capacity to manage change is tested,” he said. The importance of managing change was recently demonstrated by an IT outage at UK bank TSB. Its customers suffered over a month of disruption after the company changed computer systems following its acquisition by Spanish group Sabadell Bank. Earlier this year, UK construction company Carillion collapsed amid criticism of its business model, which saw the company expand rapidly into areas outside its core expertise. The pace of technological change and its impact on corporate strategy and business models is the focus of a new report that will published by Airmic at this year’s conference. Roads to Revolution updates Airmic’s existing guidance on building corporate resilience with emphasis on managing transformative change. Rapidly evolving technology and business models have important implications for risk management and corporate governance, according to Mr Ludlow. For example, technology is helping shift power away from shareholders to consumers and society, he said. Moving forward, boards will need to consider a much broader range of stakeholders and understand how their business models will affect society, argued Mr Ludlow. “Roads to Revolution proposes an open source form of governance. Rather than just focus on controls, boards will need to understand outcomes and the potential impact of their business on stakeholders. It’s about future proofing relationships because ultimately a business needs the support of its stakeholders,” he said. “Companies were once concerned with protecting physical assets, balance sheets, profit and loss and now the focus is on cash flow. Losing the support of stakeholders can have a big impact on cash flow,” said Mr Ludlow. Boards and their organisations will have to take more risks in an environment of transformational change, suggesting a growing role for the risk management function, according to Mr Ludlow. “Today, businesses are highly leveraged and take more risk, but they are not yet up to speed on risk management and some do not survive. There is a need to embed risk management and build risk management capability to take on risk, while at the same time producing consistent and sustainable profits,” he said. Increased focus on risk and changes in the operating environment will further evolve the risk management role, according to Airmic. “The pace of strategic change increases the role of risk managers. As risk management becomes more embedded, the role of the risk manager will become more a leader and coordinator,” said Mr Ludlow. As the role of risk managers develops, Airmic continues to support its members on their professional journey, he continued. For example, Airmic published a number of reports in Liverpool, including a risk culture survey and a paper on the role of the chief risk officer. It is also launching educational programmes, including a course with XL to help risk managers collaborate with other corporate departments. Technological and business model changes are also a challenge for the insurance industry, with implications for the relevance of its products and services. While the sector has been criticised for a lack of innovation in the past, Airmic is broadly supportive of the industry’s recent response. For example, cyber insurance is now broader, although this could be at the expense of exclusions in traditional policies, according to Mr Ludlow. Insurers engagement with the fintech sector is to be welcomed, he said. “We are encouraged by insurers incubating fintech companies, not just for insurance but also risk management. This is something we can encourage and we hope to give fintech companies more of a platform in the future,” said Mr Ludlow. Airmic members recognise that insurers face challenging times, with a soft market on the one hand and pressure to innovate on the other. “We recognise that insurers are trying to innovate and become more customer centric. Insurance prices are under pressure and many lines of business have become commoditised, so insurers are having to dig deep in order to innovate,” said Mr Ludlow. While buyers welcome lower insurance costs, the state of the insurance market is of some concern, especially where it results in mergers and acquisitions. Consolidation reduces choice for buyers and would be a concern if the number of corporate insurers is limited, said Mr Ludlow. A sustained soft market can also lead to price volatility, making it more likely the market would react to a large loss with a sharp increase in prices. “Buyers do not want to see price volatility. The message to buyers and insurers is to build strategic relationships that are focused on product innovation and risk solutions. A strategic relationship will produce better solutions and services. Solutions that buyers are more likely to pay well for,” said Mr Ludlow.

Airmic moves to help members cope with huge pace of change

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