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2017 RIMS

Feeling Unprepared to Deal With Risks

Damage to brand and reputation ranked as the top risk concern of risk managers throughout the world.
By: | April 25, 2017 • 3 min read

Geopolitical uncertainty, challenging demographics and a difficult economy are making it harder for risk managers to protect their organizations.

“Certainly there is a feeling and understanding that the risk environment is changing, and changing really fast,” said Rory Moloney, CEO of Aon Global Risk Consulting, during the RIMS 2017 conference.

Rory Moloney, CEO, Aon Global Risk Consulting

Aon’s “2017 Global Risk Management Survey,” he said, asked its 1,800 respondents, “How prepared are you?” and the results are “at its lowest point now since we started this in 2007.”

“They are sensitive to the volatility and feel less prepared,” Moloney said.

The survey found that the No. 1 global risk in 2017 was “damage to brand and reputation.” And that, too, is partly caused by the pace of change as well as the growth of 24/7 news channels and the use of social media.

“In the age of Twitter and viral videos, damage to reputation could occur because of an inappropriate tweet by an executive, or a video by an employee complaining about sexual harassment or discrimination,” according to the report.

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Regardless of the difficulty faced by a company, whether it is a product recall, supply chain failure, fraudulent act or cyber event, “the worry is just that the amplification is out there and it happens so quickly,” he said

Nearly half (45 percent) of the respondents identified brand and reputation damage as their top risk concern,while only 51 percent believed they were prepared to deal with the challenge, according to the survey.

The top 10 risks, in order, are:

  • Damage to reputation/brand;
  • Economic slowdown/slow recovery;
  • Increasing competition;
  • Regulatory/legislative changes;
  • Cyber crime/hacking/viruses/malicious codes;
  • Failure to innovate/meet customer needs;
  • Failure to attract or retain top talent;
  • Business interruption;
  • Political risk/uncertainties; and
  • Third-party liability (including E&O).

Of the top 10 risks, half are uninsurable, while three are partially insurable, according to Aon. Only two (business interruption and third-party liability) are insurable.

Cyber risk moved up from nine in 2015 on the list to five this year – but it was No. 1 for risk managers in North America, Moloney said.

In the intervening years, the risk has expanded from disclosure of personally identifiable information from retail, health care or education organizations, to include fears of business interruption and disruption of production processors and controllers, Moloney said.

Readiness by risk managers to deal with cyber risk declined overall from 82 percent in 2015, to 79 percent in 2017, according to the report.

It is critical that business and policy leaders understand which disruptive technologies will matter to them, and prepare accordingly.

In addition, multinational companies need to prepare for new data protection rules that go into effect in the EU in May 2018. Failure to comply could result in penalties of up to 4 percent of worldwide earnings, he said.

As risk managers face geopolitical uncertainty, only 23 percent of them feel prepared to deal with the potential changes facing their organizations.

“Companies can’t control the geopolitical environment,” Moloney said.

They also can’t control the aging of the workforce, which continues to creep up. Organizations need to devote resources to attract, retain and develop employees, while continuing to grapple with a multitude of other pressing risks.

To be effective, risk managers need an integrated, holistic risk management strategy that looks “top down and bottom up” at all of their organizations’ exposures, Moloney said.

He noted that two new risks entered the survey respondents’ concerns for 2017: disruptive technologies/innovation, and major project failure.

Disruptive technologies, which includes 3D printing, the Internet of Things and ride-sharing companies, among many other innovations, ranked No. 20 on the 2017 risk management risks, and respondents forecast it to move up to No. 10 in 2020.

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“It is critical that business and policy leaders understand which technologies will matter to them, and prepare accordingly,” according to the report.

Major project failure ranked No. 15 because of the potential to “undermine a company’s reputation and in many cases put a company on the brink of bankruptcy,” according to Aon.

“While major project failure is sometimes caused by external factors – such as regime change, government policy adjustment, terrorist attacks or a natural disaster – experts also attribute it to internal elements, such as failures related to market and strategies, organizational planning, leadership and governance, underestimation in analysis, quality, risk prediction, skills and competency, and teamwork and communications,” according to the report.

Additional stories from RIMS 2017:

Blockchain Pros and Cons

If barriers to implementation are brought down, blockchain offers potential for financial institutions.

Embrace the Internet of Things

Risk managers can use IoT for data analytics and other risk mitigation needs, but connected devices also offer a multitude of exposures.

Reviewing Medical Marijuana Claims

Liberty Mutual appears to be the first carrier to create a workflow process for evaluating medical marijuana expense reimbursement requests.

Cyber Threat Will Get More Difficult

Companies should focus on response, resiliency and recovery when it comes to cyber risks.

RIMS Conference Held in Birthplace of Insurance in US

Carriers continue their vital role of helping insureds mitigate risks and promote safety.

Resilience in Face of Cyber

New cyber model platforms will help insurers better manage aggregation risk within their books of business.

Anne Freedman is managing editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.