The COVID-19 pandemic is causing organizations to re-evaluate how they handle business risks, experts say.
Because several reports have shown that the spread of infectious diseases is a major problem among managers, organizations need to shift their strategy to be more resilient to future disruptions and shocks, they say.
"We must make a real effort to evaluate how shocking events can affect organizations across the value chain," said Reid Sawyer, Chicago-based Emerging Risks Manager. Group of Marsh Advisory, a unit of Marsh LLC. "We tend to measure resilience in terms of traditional meanings that only really offer solutions to known and incremental risks, but there is very little for unseen events."
A World Economic Forum report released on October 8 found that the spread of communicable disease is a major concern for executives in the US and companies globally, jumping 28 places from last year to the second most recurring risk and appearing in the top 1
In the midst of the global pandemic, organizations are shifting their conversation and re-evaluating the priorities of their enterprise-wide risk, says Jim Wetekamp, CEO of Atlanta-based Riskonnect Inc., a risk management service provider.
"Probably more than ever, there is now a more global or coherent approach to risk taken by the organization at the highest level," Wetekamp said.
This change in priorities is driven by a growing awareness of the need to address the composite impact of multiple risks occurring simultaneously, he said.
Organizations are now looking at combinations of multiple risk scenarios, whether employees who are out of work due to a pandemic, customers' inability to reach certain retail outlets, supply chain disruptions due to fires or earthquakes, or regulatory changes in a geography such as is addicted, he said.
“What used to be a risk discussion is now an operations discussion. There is no way to have a strategy for dealing with it unless you link the health and safety of employees, field operations, logistics in the supply chain, supplier management – all in a single integrated conversation, "said Wetekamp.
Risk managers especially in cities think more broadly on the next systemic risk, says Hank Watkins, New York-based regional director and president, Americas for Lloyd & # 39 ;s of London.
"The insurance industry needs to do a better job of convincing governments that there are opportunities to transfer their risks. whether from the cities themselves, which are largely self-insured, or from companies, "Watkins said.
"If we ever get to the right place, there will be much better opportunities for cities to spend less money on disasters … and more time to develop education, health care and pandemic resilience," he says.
Lloyd & # 39 ;s Cities at Risk report released on October 8 found that an extreme market crash could cost New York up to $ 308 billion, an extreme cyberattack could cost $ 333 billion and a flood loss could cost the city up to $ 1.3 trillion.
It's important to take a long-term view of shock events so that policyholders and the insurance market can begin to anticipate and understand coverage needs, said Sawyer.
"It's not just that we should expect the shock event to come to become more frequent without risk aversion, "he said.
NotPetya cyberattack 2017 spread across 65 countries within hours, while the COVID-19 pandemic took several months to spread sig.
“The speed of risk changes fundamentally due to how interconnected we are today and how many dependencies we have throughout entire value chains for our companies. We must anticipate systemic shocks and we must have the right risk system in place to deal with this world, says Sawyer.
A report published September 24 by A.M. Best Co. Inc. found that although risk management within the company had evolved rapidly over the past decade, the COVID-19 pandemic has emphasized that insurers and reinsurers may still be affected by "unknown, unknown" and "unexpected accumulations."
COVID-19 tests insurers' risk management strategy for companies, methods and resilience to current market conditions, Mahesh Mistry, senior director, criteria at AM Best, said in a statement accompanying the report.
Today's loss events, whether wildfire, hurricane or typhoon – "nothing is less than $ 1 billion longer," Watkins said. Several years ago, that level of property loss would have been "shocking," but the insurance industry could pay more than $ 100 billion for COVID-19, he said. tragic for those who experience it, does not seem to cause the industry to lose, he says.
Pandemics are a global shock while all other types of events, whether it is a terrorist attack or a targeted cyber attack or a flood, have been focused on one geographical area. "It's usually the biggest difference here. This thing is coming to us from everywhere, "said Watkins.