Mactavish points finger at brokers for ‘major flaws’ in pandemic risk assessment

New research by Mactavish has revealed “major flaws” in risk assessment and reporting among the largest UK firms when it comes to pandemics, which it argues is partly the fault of brokers that didn’t prepare clients for such extreme events. The firm has therefore called for risk managers to be given more prominence in corporate decision making and brokers to be held more accountable for their role as strategic advisers. The research found that only 13 FTSE 100 companies referenced pandemic or epidemic risks as material to their business in their 2019 annual reports. Of those companies that had published reports at the time the analysis was conducted in 2020, 82 of 88 only mentioned these risks, and some believed that Covid-19 was a regional or national issue as late as March of this year. Mactavish found that one FTSE 100 company did not mention Covid-19 at all in its March 2020 report. Another FTSE 100 company published its risk register in February this year and made only one minor change to acknowledge the potential risks posed by epidemics to the register published a year earlier. Mactavish said the lack of reference to pandemics and epidemics in so many FTSE 100 risk reports is “alarming”, given that influenza pandemics occur every ten to 50 years and the World Health Organization records an average 187 epidemic events each year. “Given the frequency of epidemics and pandemics and some recent high-profile ones such as SARS and MERS, I am shocked that so many FTSE 100 companies made little or no reference to these when discussing the potential risks they face,” said Mactavish CEO Bruce Hepburn. His firm said it is unlikely the findings are limited to the UK and FTSE 1000 firms, and therefore highlight a global issue. Mactavish pointed to its analysis of the annual World Economic Forum Risk Survey, which shows that while pandemic risks were top of the agenda in the mid-2000s, they had slipped to the tenth-most severe risk by 2020. And Mactavish believes insurance brokers and other advisers are responsible for the poor risk analysis and reporting. “Insurance brokers and other advisers are substantially to blame. Brokers describe themselves as an integral element in their clients’ strategic risk management armoury. However, many are now too focused on sales and price-driven competition. Instead, if they want to maintain their role, they need to take a genuinely strategic and empirical approach to risk. Brokers need to stay ahead of the curve but too many fail to do this, and the coronavirus crisis and the impact this has had on businesses is a good example of this,” said Mr Hepburn. Mactavish argues that risk has been an under-resourced function and is too often removed from critical decision making. It added that this suggests a lack of interest from boards and institutional investors in risk management. Mactavish therefore calls for risk management to be given greater weight in corporate decision making and oversight. “Despite our belief in the strength and professionalism of corporate leadership, understanding and management of risk is still immature at c-suite and boardroom levels. The reality is that risk assessment is far from an empirical process; all too often attitudes to risk are formed by last year’s crisis and this year’s headlines. Risk reporting should be a powerful tool to explain to investors how a company is protecting itself from the downside. Instead, they are often bland and backward-looking,” said Mr Hepburn. “While there has been much discussion from institutional investors about the concepts of stewardship and sustainability, too little of that focuses on real operational risks and too much of it could be described as ‘greenwashing’,” he added. Mactavish’s CEO went on to urge firms to better monitor risk management and expert advice from risk advisers. “Those responsible for overseeing and managing companies should interrogate the empirical basis of their risk reporting in exactly the same way they might review any other area of corporate strategy. They should be looking at the flow of risk information within the company and seeking expert advice from brokers, consultants and specialists in the same way that they might approach entering a new market or adapting their supply chains,” he said. Adding: “They should also question the advice that they received. Did supposed risk experts, such as insurance brokers, raise pandemic risks, and if not, why not? In recent years, brokers have repositioned themselves as ‘masters’ of risk in the broadest sense. They didn’t simply want to manage transactions on behalf of clients, but instead sought to carve out a more strategic role for themselves. Companies that have been paying for this sort of strategic advice will now feel that they’ve been wasting their money.”

Mactavish points finger at brokers for ‘major flaws’ in pandemic risk assessment

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