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2018 RIMS

Risk Executives Must Keep Up with the Pace of Disruptive Technology

This year's Excellence in Risk Management report reveals a gap between awareness of new technologies and the ability to employ them strategically.
By: | April 13, 2018 • 4 min read

While risk managers don’t need to know everything there is to know about disruptive technologies such as AI, Blockchain and the Internet of Things, they do need to understand the full scope of opportunities and challenges these innovations present for the organizations they serve.

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As the pace of change moves ever-faster, it’s time for risk professionals to “lean in” to those changes and help their companies stay on the cutting edge. That’s a key takeaway of the Excellence in Risk Management Report XV: Maintaining Relevance Amid Technology Disruption, published by Marsh and the Risk and Insurance Management Society.

The report shed light on the gap that exists between the awareness of disruptive technologies and the implementation of processes to deal with them from a risk management perspective, said Brian Elowe, chief client officer, North America, Marsh.

“Risk management doesn’t appear to be keeping pace with the implications and the associated risks that are emerging from advances in applications of technology and digital capabilities,” he said.

In fairness, he said, the pace of change is extreme. But the report is a call to action for the risk community to meet that pace.

The report is based on nearly 450 responses to an online survey and a series of focus groups with leading risk executives conducted between January and March of 2018.

“Get involved, help drive the conversation. Not just about the risks and what to do about them, but also how risk management can help the organization understand all of the potential opportunities.” — Brian Elowe, chief client officer, North America, Marsh

Overall, survey respondents felt they didn’t have the expertise to act as strategic advisors on disruptive technologies. Of those using these technologies, less than half felt their level of understanding was at a strategic level.

At least 29 percent of respondents said their organizations were using AI, and another 18 percent were actively exploring its use. Yet of those using it, only 12 percent knew what it was being used for.

Blockchain was being used by 11 percent of organizations, yet only 3 percent of risk professionals knew the specifics of how it was being implemented.

Of those that did know, 70 percent were using Blockchain for supply chain management, while 50 percent were using it for payments and settlements and 30 percent for claims management.

Use of the Internet of Things is more widespread. At least 59 percent said their organizations used or planned to use IoT. Still — 25 percent were unsure of the specifics of how it was being used.

It’s incumbent upon risk professionals to reach out within their organization to get a better handle on which technologies are being used in their organizations and how they are being used. Those who don’t do so run the risk of being left out of decision making. Worse, they may fail to foresee risks or develop adequate strategies to mitigate them.

Only 14 percent strongly agreed their organizations have a clear process for identifying and addressing the risks of new technology before it’s implemented. Nearly half were unclear about their technology risk management process.

Time to Get in Step

While there may still be a steep learning curve on new technologies, risk professionals are more confident than ever on their grasp of cyber risks and cyber coverage.

At least 78 percent said they grasp how the legal liability of cyber risks would affect their organizations. Only 5 percent were still unsure.

Additionally, 75 percent said they understood how their insurance coverage would apply to cyber claims, while only 7 percent did not.

The cyber market also saw a high level of satisfaction with claims outcomes. While only 20 percent reported having cyber claims in the past 36 months, 76 percent of them were satisfied or extremely satisfied.

Overall claims satisfaction was high across several lines, including product liability (79 percent), workers’ compensation (76 percent), general liability (78 percent), auto liability (78 percent), and professional and financial liability (74 percent).

That said, it’s worth paying attention to the fact that 40 percent of respondents said they would consider switching carriers or other advisors based on their ability to provide innovations in the claims arena. Another 43 percent said they wouldn’t rule out such a move.

Asked what area of the claims management process needed the most improvement, 62 percent wanted to see a reduction in the overall claims costs. Also at the top of the wish list for at least a third of respondents: Closing old claims, integrating technology innovations and simplifying the claims process.

To help move their organizations to the next level and stay on track with developing technology, the report advises risk professionals devote extra time to educating themselves on emerging technologies. Risk executives can deliver value to their organizations by providing higher-level insights and analytics related to emerging risks.

Think creatively about the application of new technology in terms of managing risks as well as improving claims management.

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“Risk management is becoming more involved in the strategic direction of organizations,” said Elowe. “Instead of just responding to risks that are coming at the organization, we see more advanced risk management operation actually getting involved in strategic planning and becoming an exporter of knowledge to product development areas and other areas in terms of risks that need to be managed or mitigated.”

Risk executives now understand their role as an enabler of their company’s business, he said, and this is an area where they can demonstrate it.

“Get involved, help drive the conversation,” said Elowe. “Not just about the risks and what to do about them, but also how risk management can help the organization understand all of the potential opportunities.” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Black Swans

Black Swans: Yes, It Can Happen Here

In this year's Black Swan coverage, we focus on two events: An Atlantic mega-tsunami which would wipe out the East Coast and a killer global pandemic.
By: | July 30, 2018 • 2 min read

One of the most difficult phrases to digest without becoming frustrated or judgmental is the oft-repeated, “I never thought that could happen here.”

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Most painfully, we hear it time and time again in the aftermath of the mass school shootings that terrorize this country. Shocked parents and neighbors, viewing the carnage, voice that they can’t believe this happened in their neighborhood.

Not to be mean, but why couldn’t it happen in your neighborhood?

So it is with Black Swans, a phrase describing unforeseen events, made famous by the former trader and acerbic critic of academia Nassim Nicholas Taleb.

We at Risk & Insurance® define these events in insurance terms by saying that they are highly infrequent, yet could cause massive damages. This year, for our annual Black Swan issue, we present two very different scenarios, both of which would leave mass devastation in their wake.

A Mega-Tsunami Is Coming; Can the East Coast Even Prepare?, written by staff writer Autumn Heisler, profiles an Atlantic mega-tsunami, which would wipe out lives and commerce along the East Coast.

On the topic of whether the volcanic island of La Palma, the most northwestern of the Canary Islands, could erupt, split and trigger an Atlantic mega-tsunami, scientists are divided.

Researchers Steven Ward, a geophysicist at UC Santa Cruz, and Simon Day of University College London, say such a thing could happen. Other scientists say Day and Ward are dead wrong; it’s an impossibility.

One of the counter-arguments is backed up by the statement that there has never been an Atlantic mega-tsunami. It’s never happened before and thus, could never happen here. See exhibit “A” above, re: mass school shootings.

Viral Fear: How a Global Pandemic Kills an Economy, written by associate editor Katie Dwyer, depicts a killer global pandemic the likes of which hasn’t been seen in a century.

Tens of millions of people died during the Spanish Flu outbreak of 1918.

Why it could happen again includes the fact that it’s happened before. The science on influenzas, which are constantly mutating, also supports just how dangerous a threat they pose to millions of people beyond the reach of antibiotics.

Should a mutating avian flu, for example, spread widely, we could see a 10 percent drop in GDP, mostly from non-physical business interruption.

As always here, the purpose is to do exactly what insurance modelers and underwriters do; no matter how massive the event, we create scenarios, quantify possible losses and discuss risk mitigation strategies. &

Dan Reynolds is editor-in-chief of Risk & Insurance. He can be reached at [email protected]