The Global Risks Report 2015, recently published by the World Economic Forum (WEF) in collaboration with Zurich, revealed that the next biggest threat to the stability of the world would likely come from the risk of international conflict. This was followed by extreme weather events, the failure of national governance and state collapse or crisis. The question is, how can businesses survive in the most volatile and interconnected global risk landscape in recent memory?
In a global risk landscape that is now commonly described as a “not if, but when” proposition, it is tempting to focus solely on a defensive risk management strategy. However, history is full of examples of static approaches to risks inevitably leading to failure: nations conquered; entire business sectors upended; natural resources depleted. For businesses to continually evolve, thrive and stay ahead of the competition requires proactively rethinking risk management strategies to incorporate reinvigorated strength and layer upon layer of resilience.
The starting point is to understand the exposures that these businesses may face. Here, insurers and intermediaries play a crucial role in understanding the possible impact of interconnected risks and how these will affect all aspects of an organisation. In addition, companies need to understand how resilient their supply chains are – a recent survey conducted by Zurich revealed that most businesses did not factor supply chain risks into their holistic risk management strategies. Furthermore, the majority of businesses had experienced at least one instance of supply chain disruption in the last year, but a significant number were not insured against the resulting losses. With the growing cost of disruption worldwide, investment in this area is not just necessary, it is vital.
These impending risks speak to the need for insurers to develop specific tailored products that may not even exist yet – how do we provide cover for a company moving into a new market that may experience political upheaval? Do we have the necessary partners in-country that can provide valuable local expertise and regulatory advice? Of course, it is difficult to avoid natural disasters, but there are ways to ascertain potential risk and reduce possible impact; ensuring continued business sustainability. Another growth area, given the global interconnectedness of risks and technology, is cyber cover. It is estimated that losses due to cybercrime in South Africa in 2014 totalled at around R5,8 bn. With the Protection of Personal Information (PoPI) Act looming (which could have financial implications if data breaches occur) and more and more employees becoming mobile and storing company information on personal unprotected devices, cover against cyber risk is critical. Not only will insurers have to look at the financial implications of a hacking but at the reputational damage as well. Cover will also be needed to pay for the intangibles such as crisis management or PR services, should an incident occur.
Ultimately, providers of commercial insurance as well as brokers will need to keep abreast of the evolving risk landscape and how these seemingly global changes will affect local companies. Carving a niche for unique offerings and solutions that help mitigate these risks will be essential to continued growth and profitability for insurers. Simply put, resilience is the ability to bounce back at least as strong as before, or maybe even stronger – we as insurers have the power to help our customers do just that.
Chris Grieve, Executive Head: Commercial and Personal Business, Zurich South Africa