Risk management should emerge post-Covid-19 stronger than ever, says HDI

The need for robust risk management has never been more urgent, Frank Harting of HDI Global has told Commercial Risk Europe.

According to Mr Harting, risk managers are needed more than ever. But speaking to Commercial Risk Europe, Mr Harting said: “Sometimes it takes failures before we change things. In Germany, we saw this after Fukushima. This brought a change in how we plan and produce energy in Germany. So, we can hardly say we have not known such threats.”

He added that there have also been warnings for quite some time that supply chains have become extremely complex, making them extremely vulnerable. The 2004 tsunami in Thailand was an example, he said, of what could happen. However, supply chains in general have not reduced in terms of complexity despite that warning.

Discussing how HDI Global has managed the transition to home working because of Covid-19, Mr Harting said: “Almost all of our staff are now either working mobile or enabled to work mobile. Our current experience in the past weeks shows us that this is functioning really well.

“The message in a nutshell is, to say it with our Talanx/ HDI purpose: together we take care of the unexpected and foster entrepreneurship. We are in the position to continue to provide key services that our clients need, including underwriting, risk engineering, claims assessment and claims handling, and we have also written new business,” he said.

However, Mr Harting believes there is a need to manage the transition effectively. “At times like this, risk managers are needed more than ever. For risk managers, such times are also a great opportunity to show that they can make a difference in their companies,” he said.

“Our recent experience shows that it is strongly recommended to establish a dedicated crisis management team/committee with a cross-functional structure. The risk manager of an enterprise should be an integral part of this team/committee along with representatives from HR, IT, investor relations, communications, sales, legal, etc, to have a holistic view and input from several departments,” he added.

For most companies, the most urgent priority is looking after staff. “Our people are our capital,” Mr Harting said. “Furthermore, it is recommended that companies evaluate the business impact for each location of their organisation, identify critical functions and staff, and determine which activities must continue to support the business,” he added.

“Which critical staff functions can be performed from home, or shifted to an alternate location, and which staff need to be provided with sufficient training? This will determine the type of response required to keep critical staff working. For essential business functions and critical staff, backup strategies should be planned and alternate arrangements identified,” he continued.

“To properly manage such a challenge, the crisis management team should always have direct access to top management and the risk manager has to be involved in this type of business continuity planning throughout the emergency. Speed and agility are key,” he stressed.

Looking at what insurers and brokers should be doing to help their customers at such a time, Mr Harting said the key lies in business continuity. “We, as insurer, can help our customers and our broker partners be best in business continuity by renewing their insurance contracts, completing risk reviews, providing risk engineering services and handling and paying their claims in such troubled waters,” he said.

Mr Harting also believes risk engineering and consulting is important in the current crisis. “To give an example: how do you deal with a multimillion-dollar construction site with hundreds of construction workers, technicians, electricians etc working on site – and it has to be shut down from one day to the next? We have people and engineers who can assist customers with advice and guidance,” he said.

The insurer said HDI Global’s claims handlers were one of the first groups to work from home, managing to quarantine themselves from Covid-19. They are now able to help their clients navigate their way through the crisis.

Mr Harting listed some of the key Covid-19 risks and loss areas.

“Human – For many companies, like in our own industry, employees are the ‘one and only’ asset they have. This resource should be well protected if a company wants to get out of such a crisis effectively,” he said.

“Financial – Interrupted cashflows; cash management gets complicated; capital basis endangered; share prices suffer and can cause takeover scenarios; low interest rates are lowered even further and make it more difficult to invest capital; and there is a risk of insolvency,” he added.

“Reputational – Be a caring employer. Beyond that, manage supply chain issues; the default of key suppliers can cause reputational damage,” Mr Harting continued.

“Resilience – Covid-19 is an extreme ‘test’ of how resilient a company is and how good its business continuity management is. For us, as an industrial insurer, our long-term stability is also of great importance. Our financial stability and security is a must to allow us to play a future role in the industrial insurance market,” he stressed.

In terms of claims settlements, Mr Harting said: “We always follow the same approach to measure every insurance policy and every loss on its individual merits. We expect limited impact from Covid-19 due to the nature of our business.”

He added that his corporate clients are well aware of the need for physical damage arising from a non-excluded or covered peril for most business interruption claims to qualify. Virus-linked losses, or losses linked to lost business, are limited to a few markets, he added.

“There has been a discussion in the market that the insurance industry should provide comprehensive non-damage business interruption cover. This discussion might come up again due to the current crisis situation. It is fair, however, to remind risk managers that a big reinsurer offered such a product in the past; however, the demand from customers was very low,” he said.

Mr Harting said the current crisis is likely to fuel that conversation once again but also “serves as indication to us all of where the limitations of insurance are”.

“If we look at the multibillion-euro/dollar relief packages that are being set up currently by governments in many countries, we can clearly see the size and scope of the financial impact. This could not be managed and carried by the insurance industry alone,” he said.

Mr Harting added that it is much too early for a clear view on Covid-19’s overall impact on insurance pricing. “Only two or three months ago, people would have been incredulous if you suggested the market capitalisation of blue-chip companies could reduce as dramatically as we’ve seen in the past few weeks. Could they have imagined that huge industrial companies must simply stop production from one day to the next?” he asked.

“From our perspective, it is neither the right time nor professional to speculate whether the hardening of the market will continue. It is clear that we, as an industrial insurer, must charge an adequate premium for our capacity and our products to show a profit to our parent company at the end of the day. That is something we have improved considerably and that means, independent of Covid-19, we must maintain our underwriting discipline,” he said.

Looking ahead, Mr Harting believes risk managers will value the continuity of service delivered through the crisis – and will value those that settled claims quickly and efficiently.

“What might change in the wider insurance market as well as many other industries after this crisis could be a boost for digital or mobile working,” said Mr Harting.

“Working is becoming much more digital and flexible these days. We are doing videoconferences, telephone conferences, etc. We are in constant contact across borders and continents with mobile devices. We discuss issues and challenges very quickly and directly. We have seen days with more than 10,000 video and phone conferences across borders and continents. Our IT and communication infrastructure has made this possible without any shortfalls, stoppages or blackouts,” he said.

Mr Harting continued: “In the past we were sceptical if we could handle policies without physical signatures: ‘Are we allowed to do this, can we do this?’ It took us quite some time to collect all the physical signatures that were supposedly needed to finalise a policy. What are we doing now? Of course, we proceed with digital signatures.”

Looking at the way globalisation has influenced supply chains, Mr Harting said a broader conversation may well follow in which governments and corporates debate the need to keep certain stocks closer to home.

“For instance, when it comes to critical products and production sites, such as medical products, do we really want to rely on a handful of manufacturers that provide hundreds of millions of people around the world with vital medical products? We might expect lively discussions on questions like this once this crisis is over,” he said.