Take steps to reprioritize risk and resilience
Traditional enterprise risk management (ERM) processes failed to identify the full scale of the pandemic as its impacts materialized into multiple key risks to organizations, such as liquidity, credit risk, human capital and accelerated rates of change. However, there is overwhelming evidence that taking an enterprise-wide approach to the response was the most valuable lesson, and one that organizations are likely to carry forward. With existing and emerging risks converging, future shocks on organizations’ radar, and heightened risks, such as cyber, associated with the pandemic response, organizations have to take steps to reprioritize risk and resilience. Following are suggestions that could help organizations navigate and prepare for an increasingly complex world.2
Expanding risk management decision-making to address long-tail and emerging risks
Boards and executive management teams need to broaden their perspective when considering risk and increase their focus on identifying and evaluating future major shocks that could disrupt strategic objectives and present threats to the organization. This will help organizations increase their preparedness and explore opportunities to enable them to thrive. It is becoming clear that resilience plans associated with prior business models will not be sufficient to protect organizations from these emerging risks.
Building a resilient workforce
Survey responses point to an overwhelming consensus that people are at the heart of business resilience and strategy success. It is notable that, at this early stage of recovery, respondents across the globe saw protecting their people as their top priority. Workforce stability and engagement is a key driver for businesses to be sustainable and adaptable across all countries and regions in a volatile and changing risk landscape.
"Whilst the pandemic has caused significant financial, strategic and operational pressures on organizations, many have adapted quickly and demonstrated resilience. The scope and extent of the pandemic was not foreseen by most organizations, suggesting existing risk management frameworks need to adapt to support future decision-making.”
- Rory Moloney, Chief Executive Officer, Global Risk Consulting, Aon
Rethinking access to capital
Few respondents said they submitted COVID-19-related insurance claims, suggesting that insurance was not viewed as a solution or was unable to meet the needs of organizations in financing their risk exposure. This is likely to be because either the risks are uninsurable or the scale of the event exceeds conventional program limits or capacity. We have seen unprecedented appetite for government support to organizations globally, which is likely to have mitigated the impact in some areas through, for example, support loans or grants. This support may not continue in the future, meaning the insurance industry needs to adapt and develop solutions capable of anticipating, responding to and mitigating financial volatility for organizations.
2 Reference: “Helping Clients Navigate an Increasingly Complex World” and “Are You Prepared for the Next Big Threat? Evaluating Current and Future Threats”
In a recent interview with The Insurer, Aon’s CEO Greg Case said COVID-19 has transformed the corporate agenda by raising board awareness of long-tail and systemic risks but the onus is now on the insurance industry to collectively rise to the challenge of meeting its client needs.