Risk managers being put to severe test, says ANRA treasurer

Alberino Battagliola, corporate insurance manager of a multinational group and Anra treasurer, gives CR Italia an overview of the market and the related landscape in Italy following 18 months of the pandemic.

In addition to health issues and social hardships, the pandemic has entailed a series of difficulties for businesses and the labour world. New risks have emerged and the known ones have evolved into more complex forms.

Risk managers have had to mobilise all their resources to provide their companies and their respective boards with the information and tools best suited to facing a new and ever-changing environment.

Moreover, this adversity has occurred in a hard insurance market, exacerbating the difficult interaction between insurance companies and businesses.

To gain insight into this situation, CR Italia asked the opinion of Alberino Battagliola, the corporate insurance manager of a multinational group, as well as treasurer and director of Anra, Italy’s risk and insurance management association

How has the pandemic affected the role of risk managers, particularly within organisations? The pandemic has resulted in a crisis whose primary risk factor is connected with health, but which also leads to a series of secondary social and economic risks.

In professional terms, risk managers are faced with a new scenario, which has taught them new lessons. What we are experiencing today will become an exemplary model of systemic risk.

Undoubtedly, therefore, the pandemic has influenced the profession in that it has enhanced the credibility of risk managers, who are called upon to intervene at the frontline to deal with an unexpected risk.

While on the one hand the situation has made it clear that the role of the risk manager is indispensable, on the other hand our profession is now saddled with a series of additional burdens that make our work more complex.

The outlook of corporate risk has stretched from the medium to the long term; as a consequence, the professional standing of risk managers has risen, but they are also taking on more responsibilities, determined by the greater complexity of the system.

Risk is on everyone’s lips, with impacts that can be measured directly in everyday life. This has led many organisations to assess risks out of necessity. This is a legacy of the pandemic: the consequence of a situation of general uncertainty is fostering the culture of risk at all levels.

Has the pandemic affected the relationship between the insured and insurers? And what expectations do businesses have for the season of insurance renewals? The year 2021 has come after two years of the hard market and the complexity engendered by the pandemic has definitely not improved the situation; indeed, I would say that growth rates are higher than in 2020.

The impact can be appraised in various segments, with a marked rise in the prices of emerging risks related to the pandemic.

This applies to cyber risk, a market that has thrived in recent years and which now includes a growing number of protection solutions. The upsurge in remote work has increased vulnerability and the number of attacks, so insurance companies are carefully managing prices and covers, to the detriment of enterprises.

Another example is that of business interruption policies, although in this case the firm’s claim history has a considerable impact.

Undoubtedly, there has been a sharp increase in solutions for liability, where a double-digit growth compared to 2020 was recorded at the beginning of the year.

Policies for D&O and W&I are currently in a hard market mode, with reduced underwriting capacity and steeply rising premiums. Liability, D&O and cyber are very volatile risk areas, unlike property, on which businesses can work by effectively improving loss prevention.

I would add credit coverage, which has also experienced an increase in rates and deductibles.

As costs connected with emerging risks are on the rise, we would have expected greater openness on risks which, in contrast, have benefited from the pandemic. For example, those related to travels which, having suffered a setback for a few months, have certainly not worsened the number of claims and the exposure of insurance companies.

This is just one side that confirms the difficult conditions facing enterprises for this year’s renewals. Businesses would expect more help from insurance companies: a further rise in rates is unthinkable.

This is especially concerning for SMEs. Insurers could support loss prevention with new innovative formulas that meet the lower capacities of SMEs.

In the current context, what are the major emerging risks? In general, I think that the greatest risk to be considered at a systemic level is climate change, whose real effects and timeframes are still unpredictable.

Let me then emphasise once again the risks connected with cybersecurity, which have both systemic aspects, related to possible large-scale attacks or hacker attempts against governmental sites, and a direct impact on the operations of enterprises, when they are hit. But there’s more: some recent cases of incidents involving governmental sites have resulted in indirect damage to many providers of the public administration. Specifically, all payments for supplies have been cancelled.

At company level, a risk to be monitored carefully is the increase in the cost of raw materials and the consequences of the rise in commodities on supply chains. Such risk cannot be offloaded onto customers and therefore leads to a decline in the company’s profit. This is a secondary risk of the pandemic, which impacts profits and exposes less financially sound companies.

Regulatory developments weigh more and more on business. In your opinion, what are the areas that organisations are most concerned about? Currently, there are three main regulatory subjects that can have a direct and heavy impact on the stability of companies.

For topical reasons, I would put in first place the compliance or otherwise with pandemic regulations. The risk of infection in the workplace and now the management of so-called ‘green passes’ are responsibilities that are difficult for companies to keep fully under control and which in any case burden the company’s workload.

More generally, the legislation on cybersecurity and specifically on privacy represents a constraint and a significant risk for companies in the event of a data breach or ransomware attack.

Finally, there is the issue of increasing environmental legislation, which is often underestimated by companies, often with completely unexpected manifestations. Large companies are more structured and can effectively monitor this risk, while medium-sized and small enterprises need support in order to fully comply with the extensive legislation on the subject.

Last but not least, I would like to mention the risk of liability for directors and officers, whose scope is getting wider and wider.

Is the Italian market exposed to higher risks compared to other countries? In addition to the risks above, which apply to Italy and other countries, I would say that Italian firms feel more exposed to the risk of accident in the workplace in the event of Covid-19 infection, to cyber risks and to the consequences of extreme weather events. They are also worried about regulatory risk, which mainly concerns administrative and supervisory authorities, and credit risk.

A typical risk in the Italian territory is floods and landslides. The morphology of our country and its seismicity expose companies to the risk of business interruption not only when they are directly stricken by an adverse event, but also if the supply chain or transport and connection infrastructure are involved.

The entire food and beverage industry, which is one of the leading sectors of the Italian economy and the second one in terms of export value, is heavily exposed to the risk of floods and landslides, as well as to the risk of extreme natural events. This industry depends on the territory and harvests, so it is difficult to keep up with the market when a year’s crop is lost.

Finally, there is a systemic risk – the underinsurance of small and medium-sized enterprises. Many difficulties facing Italian firms could be mitigated by better insurance coverage; in this regard, insurance companies and brokers can be of much help. Certainly, the crushing blow dealt by the pandemic to business activities has paved the way for a more pronounced perception of risk.

What is Anra’s role today in the development of the risk management community in Italy? Anra has proved to be very attentive and close to the community of risk managers in a proactive and responsive way, showing its increasing commitment by focusing its efforts and activities, for example with the organisation of countless webinars.

During the past year, Anra has in fact strengthened its role as the go-to association for the entire risk management system, confirming its undisputed leadership in disseminating and offering training in risk management culture.

Anra’s attention now focuses on particular on issues that broaden the vision of risk management, such as the interdependence and complexity of markets, technological innovation, and the attention of stakeholders to measures adopted by companies in order to ensure the sustainability of their business over time.

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