Ferma urges companies to build resilience for today’s risks and future disasters

Companies must build resilience to be ready for the next unexpected global risk event, as well as more obvious threats such as cyber, climate change and political upheaval, according to speakers on a webinar hosted by Ferma. A year on from the first Covid-19 lockdowns in Europe, risk managers were urged to prepare for the next systemic event, which experts agreed is most likely to arise from a cyber incident or climate change. During the Global Risks and Resilience webinar, participants were also told that more resilient companies will be better positioned to address the risks and opportunities of today’s volatile risk landscape. “The pandemic has changed the way we think of risk. There is an opportunity to learn first-hand that these low-frequency, high-impact events can and do happen,” said Carolina Klint, managing director and risk management leader for continental Europe at Marsh. The pandemic has also kickstarted a discussion on resilience and the need for a more equitable sharing of society’s resources, she said. “Talking about risk has now become more popular [since the pandemic] and executives are more willing to invest in resilience, and we now see a place for risk professionals at the table. For 2021, there is renewed appreciation for risk and resilience,” Ms Klint said. Businesses must now balance Covid-19 with building resilience to other long-term risks, Ms Klint explained. For example, the World Economic Forum Global Risks Report 2021 highlights a number of key issues going forward, including disorderly disruption for business, political risks, digitalisation and demographic changes. “Companies will also have to cope with cyberattacks, more extreme weather and more scrutiny by society. There is a lot for companies to deal with,” she said. Resilience can be seen in “two dimensions”, according to Philippe Cotelle, head of insurance risk management at Airbus Defence and Space, and Ferma board member. “Climate change is a mid- to-long-term risk… but cyber exposure is happening today and could stop your business tomorrow,” he said. “Risk management’s key asset is to have a long-term view and to address the mid-term objective, as well as face the short-term issue of whether you will be able to work tomorrow. Risk management needs to be practical now and combine the short-term with long-term action,” Mr Cotelle said. In particular, companies face increased cyber exposures through digitalisation, which has accelerated with Covid-19, explained Mr Cotelle. “Digitalisation is affecting all companies, of all sizes, whether they are ready or not. And not all companies are aware of the new exposures and threats they face, nor have they the right expertise or insurance cover. If they were to suffer a large cyberattack, they would be left without a solution due to their lack of expertise or the financial resources to sustain it,” he warned. The rapid digital switch during the Covid-19 crisis was a lesson in resilience but it also has consequences, warned Mr Cotelle, who leads Ferma’s work on cyber. The pandemic has made companies and consumers more reliant on technology, while the pace with which companies moved to home working and e-trading has compromised security, he said. Ms Klint suggested that businesses should take time to assess decisions taken in the “heat of the pandemic”, such as with remote working, and look to close any security or governance gaps. According to Mr Cotelle, cyber insurance is an effective but complex tool. “We see a number of companies left alone and this is a concern. Companies need to understand the exposure – to incentivise risk management – while insurers need to play their role,” he said. Insurers recognise the need to help clients build resilience in areas like cyber and climate change, according to Eugenie Molyneux, chief risk officer of commercial insurance at Zurich. “The insurance industry sees the need to help customers be more resilient. On this issue, insurers and customers are aligned,” she said. The more resilient a company is, the more likely it will be able to secure insurance cover, particularly in topical areas like supply chain, natural catastrophes and cyber, she added. The pandemic highlighted the growing interconnectivity of risk and complexity of today’s risk landscape, as well as the issue of “timing”, or when risks materialise, according to Ms Molyneux. “The risk landscape has become much more intense. There are more risks and they are more interconnected. This makes it much more difficult to quantify risks. Different risks can become different threats, and at different times,” she said. Covid-19 has laid bare the risks companies take, such as just-in-time supply chains, but it has also demonstrated the benefits of resilience, according to Ms Molyneux. For example, companies with digitalisation strategies were able to move faster, while those with more diversified supply chains were less impacted. However, resilience practices can have trade-offs, she said. “If you want to be resilient to one risk, you need to ensure you do not create vulnerabilities to other risks,” Ms Molyneux warned. For example, companies are under growing pressure to onshore or nearshore production, but this could bring additional natural catastrophe or political risk, she pointed out. Risk managers should be prepared to adjust existing data for future scenarios, according to Ms Molyneux. “Think of trends and tipping points – and ask if historical data is fit for today’s situation or tomorrow’s scenario,” she said. For example, if you use data from the 2002 Severe Acute Respiratory Syndrome outbreak to model the Covid-19 pandemic, you will have to adjust for China’s now-critical role in global trade and supply chains, as well as increased connectivity, she added. According to Valentina Paduano, chief risk officer at Sogefi Group and Ferma board member, risk management can also help companies meet the challenges of climate change. But risks like climate change and cyber present opportunities, as well as threats, said Ms Paduano, who leads Ferma’s work on sustainability. “One of the lessons of the past year is that negative events can lead to positive changes in an organisation. For example, we have had an opportunity to change the way in which we work and get a new balance of private and professional life,” she said. “We have learnt that remote events can occur, but that companies are able to react positively to negative events. Companies need to be ready to change and see [negative events] as an opportunity to change business models and ways of working. There are not just risks but opportunities,” she stressed.

Ferma urges companies to build resilience for today’s risks and future disasters

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