How would you describe the impact of COVID-19 on your business?
My company's board will be investigating the feasibility of a new captive solution
My company could do more to better integrate its corporate risk and insurance activities
Different regions of the world have experienced varying waves of the pandemic and rapidly changing restrictions as a result, leading to regional nuances for organizations that report to be in the recovery phase. APAC had the lowest number of respondents in the recovery phase (only 39% compared with the benchmark of 52%) but much higher numbers of organizations in the reshape phase (36% compared with the benchmark of 29%). This may be related to the fact that the region was hit earliest by first and second waves. It suggests that resilience and applying the lessons learned from the event have enabled organizations to move forward with strategic plans. North America showed the highest proportion of respondents in the recovery phase (59%) and was slightly above the benchmark for organizations in the reshape phase. This suggests a level of resilience within these organizations that has enabled them to stabilize and start to plan. High numbers of respondents in all regions indicated that their organizations were affected but remained resilient, with a benchmark of 48%. Again, APAC had the highest number of respondents in this category (57%), followed by LATAM and North America (each at 51%). EMEA had the lowest score for this metric (42%), and a higher proportion of EMEA respondents reported that they remained unsure of the long-term impact (3% above the benchmark). At the time of the survey, EMEA was entering its second wave. The resulting uncertainty is likely to have influenced the responses for the region. As organizations make decisions in the recovery stage, there was broad consensus that they could do more to better integrate corporate risk and insurance activities, but there were regional differences that reflect variances in priorities across geographies. Overall, 49% of respondents agreed or partially agreed that their companies’ boards plan to review the ongoing performance of a captive insurance company, and 46% agreed or partially agreed that the board will investigate the feasibility of a new captive solution. EMEA and LATAM had the highest number of respondents suggesting they would not review plans. This seems to be at odds with the proportion of organizations in these regions that were affected by the pandemic. It may be that those organizations are still dealing with the immediate impacts and therefore consider these areas a higher priority. EMEA organizations appear more optimistic about how businesses integrate corporate risk and insurance activities; 30% of respondents in this region do not think the company could do more to improve this process. This may be because single-risk and insurance functions are embedded in more of these organizations. However, when we look at the impact on organizations in this region, there still appears to be room to improve the efficacy of the risk-management process through improved planning for future shocks. Business continuity is another critical recovery area that demonstrates regional differences. North American organizations placed higher importance on reviewing business-continuity-management (BCM) plans (60%), whereas only 51% of EMEA and 47% of LATAM respondents said that they would review BCM. This suggests that North American organizations place focus on business continuity planning as a separate exercise rather than considering it to be part of the broader ERM strategy. However, the focus on BCM could reflect their current priorities as they remain unsure how to apply lessons to their enterprise-wide risk management going forward.
The survey showed that 43% of respondents do not believe their companies will be more dependent on risk financing/insurance after the pandemic. Only 13% considered they would be more reliant on insurance or risk financing in the future. This suggests that organizations do not identify the impacts from the pandemic as insurable; they recognize that conventional insurance structures will not meet their needs and that exploring mechanisms may provide an alternative way to finance risks. Indeed, 49% of respondents agreed or partially agreed that their company’s board will review the ongoing performance of a captive insurance company, and 46% agreed or partially agreed that their boards will investigate the feasibility of a new captive solution. This means it is going to be more important than ever for organizations to identify and understand future shocks or the risks associated with black swan losses. This is necessary to preserve shareholder value and maintain resilience in preparation for potential future events. The transportation and logistics (24%) and hospitality (20%) industries have the highest percentage of respondents who said their company will be more dependent on risk financing/insurance as an instrument to help smooth the volatility of performance if insurance products that apply to pandemic risk impacts become available. This is likely to be driven by those organizations feeling most significantly affected by the pandemic, as they consider how they may seek efficiencies and manage the volatility created by the economic effects of COVID-19.
My company will be more dependent on risk ﬁnancing/insurance as an instrument to help smooth the volatility of performance if insurance products are available that apply to pandemic risk impacts
My company will be focused on reducing its total cost of risk
Total cost of risk
The survey results show that companies are not focusing heavily on total cost of risk, despite a hardening insurance market and emerging long-tail risks. Only 39% of respondents agreed that their company will be focusing on reducing TCOR, with the largest categories of respondents suggesting they are unsure. This may reflect continued uncertainty over the ongoing impacts of COVID-19, particularly as additional waves are affecting countries in EMEA and North America. While companies may not be focused directly on reducing TCOR, the majority of respondents suggested they would review TCOR as part of their normal business activities. We expect organizations to turn renewed attention to the management of TCOR when the pandemic recedes and the macroeconomic circumstances stabilize.
Insurance program structure and design
There was a strong consensus among respondents that COVID-19 has not accelerated their company’s efforts to review and adjust insurance programs or structure/design (59%). Most respondents noted that the reason for reviewing their insurance program structure or design is to improve existing policies (48%) or to add new policies or coverage (40%). Given that few organizations considered the impacts from the pandemic to be insurable, it makes sense that the pandemic itself was not seen as a catalyst for reviewing structure and design. Respondents also cited cost reduction, capacity and market conditions as reasons to review the structure and design of their insurance programs. Companies seeking to improve existing policies or add policies and coverage will likely face some work ahead, with markets looking to tighten exclusions for pandemic clauses and a reduced appetite to extend wording or coverage options. We believe that the state of the insurance market is most likely to drive decision-making in this area over the next 12 months. A strong strategy and approach have never been more important in helping clients to understand their choices and ensuring that insurance programs are optimized and remain fit for purpose in a complex world.
COVID-19 has accelerated the reviewing and adjusting of my company’s insurance program structure/design
What are the reasons your company will be reviewing its BCM program?
Business continuity management
Although most respondents reported that their companies had remained resilient, a majority also said that they need to review business continuity management (56%). While more than two-thirds of respondents said they would review BCM as part of their normal business processes (68%), just under a third said they should prioritize efforts to improve their BCM programs (32%). This suggests that organizations understand the need to reevaluate their existing plans to apply the lessons learned from the pandemic. This is also necessary because the pandemic response is likely to have altered organizations’ dependence on technology as part of their plans to maintain resilience. The speed at which new technology has accelerated in enterprise-wide use may mean the full interdependencies and critical failure points have not been fully tested. As the pandemic has seen a rise in criminal activity associated with technology (ransomware attacks and so-called state-sponsored malicious attacks), organizations must ensure they understand these vulnerabilities.