Risk prioritisation key to avoiding overload amid ‘intense volatility’, says Signorelli

Zurich Commercial Insurance CEO Sierra Signorelli has told Commercial Risk that the next decade is set to be characterised by “intense volatility”, and believes risk managers will need to be able to prioritise key risks more than ever before to avoid overload.

Speaking to CRE as the World Economic Forum (WEF) published its Global Risks Report 2024, Signorelli added that she supports public-private partnerships (PPP) to help manage some of the big systemic risks facing the world today, such as rising natural catastrophes and cyber. But she stressed that improving risk management and resilience must come first to keep the exposures manageable.

The CEO said that the latest WEF report, which paints a fairly gloomy picture and finds that pessimism is growing among risk experts, strongly suggests that the world will face huge volatility over the next ten years as it transitions through geopolitical changes, climate challenges, demographic changes and shifts in technology.

She thinks there are four key groups of risks within the report that rank high in the survey and are going to be the biggest challenge for multinationals.

“When I look at the top risks and the most relevant for companies in the report, they would be extreme weather, global warming and weather-related events as one group of risks. Technology, misinformation and cyber security also come as a group together. Economic impacts are a third risk area and then increased conflict and societal polarisation is a key group too,” she said.

Another thing that stands out in the report to Signorelli, and will make it more challenging to deal with many risks, is that global cooperation is likely to come under further pressure given the geopolitical trends.

“There are many different considerations for multinationals as they look at their geographic footprint, as they look at their trading partners, as they think about their supply chains. Having these geopolitical tensions is going to require companies to really think through these issues more than ever,” she said.

“Supply chains are incredibly complex. With the conflict in Middle East, we are now seeing problems with trade routes, which increases timing risk or the threat of non-delivery of critical supplies, to an increase in costs if you have to ship things a further distance, which will inevitably have an impact on inflation,” added Signorelli.

Diminishing global cooperation will make managing big, global risks even harder and require local regulations and risk mitigation strategies instead. While Signorelli thinks that this approach could work and will deliver change faster than global rules, she is clear that it will create headaches for multinational firms, which will have to deal with the myriad regulations that can have diverging objectives.

“The problem for multinationals is that if everything is different around the world and we see increased polarisation – take the different approaches to ESG regulations, for example, between the EU and some US states – if you are a multinational company you have to somehow square that circle,” she said.

Given the polycrisis the world seems to have been going through since Covid-19 and mounting global tensions, Control Risks warned in its 2024 Risk Map that risk management overload has become one of the top five risks facing companies this year. But the company said overload is not inevitable if risk managers reboot their operations and take advantage of their rising prominence.

Signorelli agrees with both conclusions, and advised risk managers to really focus on risk identification and prioritise key risks.

“This seems like an obvious statement but some things are going to be more important than others. With the overload piece, you simply cannot treat everything as equal. Different companies will have different critical exposures, so being thoughtful about those things that matter the most is increasingly important,” she said.

“There is far more data available to make better decisions. So this can help risk managers to better evaluate risks and what will matter most financially. There are so many different things to respond to so it is important to use data to inform decision making ,” she added.

Zurich’s Commercial Insurance CEO said risk managers should lean on their insurers, brokers and other experts to help assess and manage key risks, so they don’t have to keep reinventing the wheel.

“It is important we work with companies to identify these risks and make sure we use our knowledge and experience to help customers manage this in the best possible way,” she continued.

There have been big calls for PPPs, not least from Ferma, to help manage and transfer some of the big corporate risks that are simply too big for the insurance market to handle alone, such as pandemic, the mounting cost of nat cats and cyber. Developments seem to have stalled as the world crashes from one new crisis to another, but there remain hopes among many in the risk management community that such solutions can be developed.

Signorelli backs the creation of PPPs but, like Ferma suggested with its proposed European cyber pool, is clear that risk management must come first.

“Yes I support public-private partnerships, but they can’t be the first answer because even if you have a PPP and the exposures get worse and worse, the public will have to bear that cost. So, firstly, we need to understand the risk and then companies need to work out how to mitigate and manage that,” she said.

Adding: “We at Zurich firmly believe you can significantly reduce the risk at many facilities. So I think that has to be done first to keep the cost of risk down, businesses operational and risk transfer pricing affordable, whether it’s a PPP or purely commercial. So, building resilience has to come first or the risk become unmanageable.”

And Signorelli stressed the importance of building this resilience upfront and believes the pandemic has put risk managers in a strong position to get that buy in from the top.

“It is easy to delay investment on risks because you don’t know when they will happen. But setting aside funding and building resilience upfront is important before an event happens. Companies are good at addressing problems after the fact, but there is huge value in preventing it upfront and it is a much more cost effective way to do it if you have the discipline to do so in small steps over time,” she said.

“The pandemic has helped get more budget for some of these issues. There has been a huge change in the focus on managing risk post Covid and with more weather events,” she concluded.