Four things risk managers can do right now
It’s been a year of risk. Pandemic, bushfires, flood - all in extremely challenging insurance market conditions. While the pandemic will one day end, risk is here to stay, and risk managers need to change their approach on organisational resilience.
The 2021 Global Risks Report, published by the World Economic Forum in partnership with Marsh McLennan, reveals the top concerns business leaders are most concerned about when leading their organisations into the future.
So what do the responses from over 700 experts and decision-makers specifically mean for risk managers?
Risk managers are in the driver’s seat. Evidently, the risk conversation has changed. Risk is now informing every decision made. Organisations are looking to risk managers to help rethink short and long-term business strategies, and help build organisational resilience. So where to start?
We believe risk managers should focus on four key things:
1. The pandemic showed how risks such as infectious diseases bring more than just health threats – they disrupt supply chains.
You’re only as resilient as your supply chain is. Risk managers need to consider what it truly means to be ‘resilient’. If you’re running at peak performance, but there’s sudden disruption with your supplier, you might be soon hitting the breaks.
Think of COVID-19 at a time when demand for medical equipment outpaced supply. Risk managers can take inspiration from Dr Nicole Townsend who had the foresight to see that the pandemic was going to create shortages of essential items such as medical gowns. Heroically, she started making and distributing the garments across Victoria!
Look around you. Successful risk managers are those who anticipate risk outside of their own organisation. At Marsh, we’ve been helping clients understand where their customers and suppliers were located during the recent La Niña weather season, and whether any supplier was exposed to any flooding events.
2. Shifting from static risk assessments into probability-based insight.
The way in which to define, measure, and manage enterprise risk has evolved to a game of probability.
In our data-based insights article, we called out the need for data to help identify the probability of scenarios. On the back of this, actions can then create a clear path forward for each eventuality. So when data indicates a potential problem, your organisation’s pre-planned decision can lead to swift action.
In the thick of COVID-19, organisations suddenly needed to make decisions on a response to a virus the world knew little about – there was no trusted data. Now organisations can identify, access, run and use data from models and even databases that may not exist in-house. Think about how data might work for you as a risk manager.
3. The power of debriefing risk events – memories fade.
Amongst the chaos, do you ever take the chance to stop, pause and reflect on your decisions in the heat of the moment? Memories of what happened during the early stages of any big event and the context in which you had to make decisions fade quickly. Information and lessons learned may be lost.
As the saying goes, “Identical crises never happen twice”, however, this makes it even more important to learn whether your workplace had the skills of adoption, invasion and tolerance for uncertainty.
Events like COVID-19 should not be perceived as a one-off event but rather an indicator of how well your organisation can respond to any test. Business Continuity Debrief workshops can help your business understand questions such as:
Workshops can also help avoid costly impacts to your business interruption insurance. Have you, your suppliers’ or customers’ ways of working changed over the past year? These need to be documented to optimise your business continuity plan. If not, you might be subject to potential increases in business interruption insurance.
4. Avoiding a climate change business disaster with a risk lens
Know what climate change risk means for you, not just the world. Climate change is not just a social problem, it’s a business one, with climate related costs only rising.
Start by mapping out what the variables are. For example, what does a single percentage change in temperature mean for your employees and business assets in the real world? For farmers, it might mean destroyed crops and decreased outputs of agriculture. Consider risks like a water and energy crisis.
Secondly, understand what the impacts are when risks like heat waves last longer. Think about location risk in tropical areas like Far North Queensland. For your workplace or suppliers, it might become too hot to work. What might intense flooding and rising sea levels mean for your business? Physical assets like buildings in coastal areas will only become more vulnerable to extreme flooding and cyclones.
Thirdly, consider the adaptation and intervention needed to avoid a climate change business disaster. Perhaps it’s water and energy conservation and finding innovative alternatives to rain water storage.
As we observe changes in natural disaster activity and intensity, insurers are reacting by increasing premiums and enforcing stricter exclusions and lower limits. One step further, they’re reducing capacity or withdrawal altogether from industries seen to be contributing significantly to climate change. Risk managers can’t afford to sit and wait. Climate change is a ‘here and now’ business challenge.
Looking forward with confidence
Risk managers are in pole position as the world recovers from a global pandemic and responds to ongoing threats such as cyber-attacks and catastrophic climate change.
Now is the time to rise to the occasion and review your risk management strategies, so you can build resilience for what comes next.
Talk to us
If you would like to better understand how emerging risks might impact your business and how you can be prepared to respond, you can contact us here.
For more insights, you can read The Global Risks Report 2021, published by the World Economic Forum with support from Marsh McLennan.
The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk. Statements concerning legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal advice, which we are not authorized to provide. All such matters should be reviewed with your own qualified legal advisors. Copyright 2020 Marsh Pty Ltd All rights reserved. LCPA: 21/040
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shortbio: Head of Strategic Risk, Marsh Advisory, Pacific
title: Head of Strategic Risk, Marsh Advisory, Pacific
Head of Strategic Risk, Marsh Advisory, Pacific
shorttitle: Head of Strategic Risk, Marsh Advisory, Pacific