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Dynamic risk financing in uncertain times

The retail, food, beverage, and leisure sectors are more competitive than ever, and constant change requires a flexible approach to risk financing in order to navigate an unpredictable future.

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By David Tate , 

Retail, Food, Beverage and Leisure Industry Leader, UK & Ireland

04/02/2022 · 4 minutes read

Dynamic Risk Financing in Uncertain Times

Major adverse events are expected to occur more frequently in the future, further conditioning organisations to operate in a world of constant change. Climate change, stakeholder expectations, geopolitical risk, global interconnectedness, and the technological revolution will also play major roles in global shocks.

The retail, food, beverage, and leisure sectors are more competitive than ever, with consumers who are increasingly inquisitive, informed, and expectant. Constant change and reinvention, however, require a dynamic and flexible approach to risk financing and management in order to navigate an unpredictable and fast-changing future. 

Protecting the Future – A Call to Action

It is imperative for firms to step back and take a clean sheet approach to risk financing. For many organisations, their risk and insurance processes and programmes have been based on the past, designed to protect historic activities and exposures. Organisations have inevitably evolved over time, with new strategies, products and services, and new markets; this has led to significant changes to risk profile and financing priorities.

The following outlines the three actions companies need to take to strengthen their approach to the future and to build resilience when planning for the new normal.

Identify current and future risks and exposures, and assess the optimum way to finance them. The process must be updated regularly to keep pace with change. This will help inform the composition of your risk and insurance portfolio.

Optimise each component within the portfolio. The question is whether you are allocating your budget on a risk-weighted basis — ensuring that the largest proportion of the budget is allocated to those risks that have the highest loss frequency and severity. Anecdotal evidence suggests that many budgets have not been allocated based on claims likelihood and/or cost, but simply on the basis of historical actions rolled over each year.

Apply future-fit risk financing. By adopting a ‘next-generation’ risk financing approach, where protection is aligned to business exposure on a risk-weighted basis, organisations will be best positioned to respond to future opportunities, deviations, and shocks.

Companies now need to build dynamic risk identification, prioritisation, and treatment frameworks to keep pace with changing customer behaviours, competitive landscapes, and global trends. This will undoubtedly feature a shift in emphasis towards apportioning greater protection and budget on intangible, digital, environmental, and people risks.

The DNA of any business should also feature strong organisational resilience to not only withstand threats, but to emerge stronger. Rehearsing to deal with the unexpected and adopting a mind-set for seeking opportunities from adverse events will protect and enhance enterprise value. Combining these proactive strategies will support businesses to achieve future-fit status.

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