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Preparedness is vital as companies face up to managing risks by themselves

Faced with rising risks but decreased insurance coverage, companies have to retain more risk themselves. This, says BELFOR CEO Elvir Kolak, makes it more important than ever to have a detailed emergency plan in place

Companies have been faced with a daunting trifecta of late – a rise in risk on almost all fronts; increasing premiums and deductibles in most lines; and decreasing insurance coverage in other lines.

Consequently, those companies’ risk managers have had to deal with the consequences of this riskier environment themselves rather than relying on their insurers as the main source of mitigation or risk transfer. This in turn has emphasised the need for companies to be adequately prepared to manage their exposures before problems occur.

We are currently living in an unprecedented environment of risk.

In May, catastrophe loss data specialist Perils updated its estimate to €3.6bn for the insured property losses from the windstorms that affected Europe in February. The majority of the property insurance claims came from Germany but there were also significant losses in the UK and Benelux countries, as well as Denmark.

These losses follow on from a busy storm season in 2021. According to Swiss Re, natural catastrophes in 2021 resulted in a 33% increase in total global economic losses to $270bn and insured losses of $111bn, a 23% increase over 2020 figures.

Secondary perils accounted for the majority of insured losses, with the flooding in Europe in July proving to be the costliest natural disaster on record in the region. The 2021 storms also highlighted the scarcity of resources once a storm becomes a regional event.

In addition, there is the escalating threat of cyber risk and the ongoing disruption to global supply chains, which was first exposed during the pandemic and has since been exacerbated by the war in Ukraine.

A recent survey published by European risk management association Ferma, in partnership with PwC Europe, highlighted the increase in risk and the economic impact of these trends. It found that cyber risk has become a much bigger concern. The number of managers identifying it as their number one risk rose from 48% in 2020 to 63% in 2022.

Back in 2020, against the backdrop of the global pandemic, economic uncertainty was the clear number two risk, as identified by 27%. However, two years later, as the health impact of the pandemic subsides and the social and economic aftermath becomes clearer, the threat of supply chain failure has become more prominent and is now the second biggest concern, cited by 41% of the 556 respondents from 27 countries.

Similarly, geopolitical tension and uncertain economic growth are far more prominent than two years ago.

The survey also revealed risk managers’ views on long-term risks, where there has been a noticeable shift. Climate change was the clear priority, as identified by 48% of respondents as their number one risk over the next ten years. A risk such as climate change will also threaten entire regions and not just single companies.

Ferma also gauged risk managers’ views on the commercial insurance market, which has hardened at the same time as risks have risen. The survey confirmed what we all know – that just as corporations needed their insurance partners to step up, they backed away.

As many as 78% of risk managers said they are heavily impacted by rising premiums, while a similar number (71%) face reduced capacity and 63% face exclusions on specific risks, with 41% stating that they expect some of their activities to become uninsurable in the future.

These developments have impacted risk managers’ strategies accordingly as they look beyond the insurance market. Just less than three quarters (73%) plan to focus on risk retention over the next two to three years, while 29% plan to use alternative risk transfer.

Such a change in strategy will place a much greater onus on companies to better manage their own exposures. And as with any risks, early identification is critical. Fortunately, there are a number of systems available to companies to help with identifying problems early on and also recovering from loss events.

BELFOR’s RED ALERT service is structured to work alongside companies’ response plans and emergency procedures so that recovery can be more rapid and effective, and that any gaps in business continuity plans can be minimised.

  • BELFOR covers entire supply chains across all continents.
  • RED ALERT® clients receive exclusive access to a dedicated hotline.
  • RED ALERT® clients enjoy priority status. In the event of a national disaster and increased demand, RED ALERT® clients skip the line and get served first.
  • No two businesses or even industries are alike. This is why BELFOR experts’ bring in specialist knowledge and experience of all businesses, being able to customise their services before, during and after a business interruption.
  • By their nature, emergencies create uncertainty. RED ALERT® supports companies in defining their appropriate level of service, which corresponds to their prevention planning, making their business more resilient.
  • The first hours following a disaster are crucial. Step-by-step protocols tailored to the client’s needs reduce the impact of any business interruption. That way, companies are ideally prepared for both minor incidents and worst-case scenarios.

These are challenging times for corporate risk managers. The risks from natural catastrophes are rising and also more difficult to predict. At the same time, the hardening insurance market is leading more companies to retain more of their risk.

It is therefore critical that companies have a disaster recovery plan in place and, in the event of a natural catastrophe or other disaster, a partner that they can rely on when they need them most. Anytime. Anywhere. Anything.

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