Insurance cannot pick up pandemic bill, so risk managers must step up

While many around the world have looked to their insurance policies to cover the costs of the Covid-19 pandemic, a group of Swiss risk managers taking part in our Risk Frontiers Europe 2020 survey agreed that it was completely unreasonable to expect insurers to foot the entire bill. But work was needed to determine exactly how insurance may respond and, of course, ensure risk management came to the fore, they said. Carsten Schirmeisen, head of group insurance and risk financing at LafargeHolcim, was among those who believed insurance was never going to cover the costs of the pandemic. But he explained that insurance was an immediate focus for many at his firm. “At the beginning, all our various country managers looked to their insurance policies to see if claims could be made. We were answering a lot of questions about the ways in which policies worked,” he explained. “For example, we knew that business interruption would not be covered but we did have delays on deliveries. To start with we were looking at force majeure and then to our marine policies. Port authorities were not allowing non-essential items to be unloaded, so we had cargoes stuck on vessels. We spent a lot of time laying out to our countries how those policies would react and also in connection with force majeure. At that time, there was a high demand for information on insurance,” he added. David Howells, director of group risk management at Tetra Laval, said there were two distinct considerations when the crisis struck – insurance and risk management. “We had the inevitable questions about whether it was an insured event in terms of business interruption, but we saw it as much more of an operational event. We formed a crisis management team to run the operational side,” he said. Mr Howells explained that, as a risk manager, he was not required on the crisis team but did offer advice and guidance. “Decisions were needed extremely quickly, so it made no sense for me to be on that team. Looking forward, the lessons for us were around speed and agility. There were challenges for our staff in working from home and we needed to be very reactive. For example, those with young children struggled to work nine to five and it would have been unreasonable for us to have expected that,” he added. Julian Ledergerber, junior insurance and risk manager at Bühler, believes global health organisations needed to step up and take more of a lead during the Covid-19 outbreak. “I really believe global organisations such as the World Health Organization needed to be far more agile and react much more quickly than they did.” He also suggested that risk managers can help recognise global risks faster. Mr Howells said the risk management response partly depended on the type of business. For example, his own organisation includes three distinct business areas. One is heavily involved in agriculture, so had prior experience of dealing with disease outbreaks. “We had experience of the foot-and-mouth outbreak in UK farms back in 2001. That effectively involved local lockdowns and we did learn from the experience. It helped us this year because we had considered such local events and then scaled them up to global levels,” Mr Howells said. He also stressed that Covid-19 is not the only big health risk currently. “Businesses need to be watching these health crises. For example, there is an outbreak of bubonic plague in Inner Mongolia right now – heaven help us if that was to start to spread further afield,” he said. Andreas Frei, global head of risk management and insurance at Swissport, reminded the group that risk managers are not troubleshooters and should take a holistic view of the potential risks facing their organisation. “If you think back pre-Covid, pandemic was on the risk map but it was a dot on the map, with a very low likelihood and high-severity scale. Compared to other risks on the landscape, the risk of pandemics did not stand out remarkably. It is important in the future that we do not overlook this type of risk. However, that has to be balanced with the question of how do we justify a huge mitigation, with associated costs, of such a risk, versus other risks on the map?” he stressed. Mr Howells wondered whether the answer lies in a new approach. “Maybe the challenge comes in trying to classify risks in terms of definite, probable and improbable. As a pandemic is a low-frequency, high-impact event, it automatically moves down the priorities. Maybe we should consider it in terms of a local outbreak, an epidemic such as African swine flu, which is changing trading patterns around the world, and then pandemic which had the highest impact. If you are scaling the risks in that way, you can escalate the necessary mitigation processes. It gives you the opportunity and ability to respond better and have more effective mitigation at the ready,” he suggested. Mr Schirmeisen made the point that the pandemic has given risk managers the golden opportunity to engage more fully with senior management on future low-probability risks. “You cannot expect senior management to focus on such unlikely events or to spend scarce resources on mitigating them. But risk managers can suggest systems that allow the business to react quickly, should such events happen. We were fortunate in that we have operations in China and were monitoring this crisis from the start. We could see the threat escalating and were able to react very quickly as a result,” he said. Mr Schirmeisen believes the key to managing such events lies in that ability to respond quickly and with agility in the face of a crisis. Volker Trapp, risk and insurance manager at logistics giant DHL Global Business Services, stressed: “You can draw up all the risk matrices in the world, but you must also recognise that something will happen that never made it onto your list – that’s the way it goes.” The group agreed that now is the time for risk managers to take advantage of the crisis and reach senior management on other big risks. “Risk management may not have been at the heart of the crisis management response,” said one, “but it had a crucial role to play in preparing the company to cope, and we need to make sure the board has understood that message loud and clear.”

Insurance cannot pick up pandemic bill, so risk managers must step up

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