Insurance needs to play a bigger role in responding to risk flexibly moving forward

By Associate Editor Katie Scott

Oh how things have changed since Covid-19 entered our lives around a year ago – it’s strange to think how long we have now coped in this ‘new normal’.

Katie Scott_bw_path

Katie Scott

Risk management has undoubtedly always been an important facet of the insurance sector, however it seems to have experienced an impressive leapfrog bound to the top of organisations’ agendas following the onset of coronavirus, the associated social distancing measures and numerous lockdown regimes.

In part, this could be because we were all bewilderingly unaware that a pandemic was even a risk we would have to face.

According to research published by broker Aon this week – its global ’Reprioritising Risk and Resilience for a Post-Covid-19 Future’ survey - 82% of respondents reported that, prior to Covid-19, a pandemic or other major health crisis was not a top 10 risk on their organisation’s risk register.

Furthermore, findings from its 2019 Global Risk Management Survey found that pandemic risk was ranked 60 out of 69 identified risks.

Based on these figures, Aon is calling on business leaders to “reprioritise risk — broadening their perspective and evaluating major shocks, not just anticipated losses, and elevating risk managers to an enterprise-level strategic role” in order to “redefine resilience”.

Interestingly, the survey – which was conducted in the last quarter of 2020 with over 500 participants from organisations of various sizes in 41 countries – found that 88% of respondents did not make a pandemic-triggered claim through its insurance or captive.

Aon said this indicates that “insurance was not viewed as a solution to help finance the exposure and plays a small role in what are now the most significant risks facing companies”.

This mis-aligns with what many of us view as the key purpose of insurance – to protect insured organisations from specified exposures and risks. Granted, the situation may differ dependent on country – I wonder, for example, how the UK’s business interruption drama is played out in Aon’s baseline figures?

Like a phoenix rising from the face mask-wearing flames, Aon suggested in its report that “the insurance industry innovates in response to companies’ changing needs, increasing global volatility and emerging risks.

“Successful solutions for the post-pandemic era will need to be more agile, strategic, targeted and scalable — but addressing underserved companies, economies and societies requires a fundamental shift in traditional insurance approaches”.

My first reaction when I looked at these headline figures was for brokers.

The prospect of professional indemnity claims has hung heavily for brokers throughout the business interruption test case, as it meandered virtually through both the High Court and Supreme Court.

Policyholders potentially stumped on how to receive a claim payout following BI declinatures from insurers were, on occasion, looking at brokers to take the fall, suggesting that brokers who failed to highlight pandemic risks when sourcing and advising on commercial insurance coverage were negligent in their duties – and should, therefore, now pay up for claims.

Aon’s stats paint a different picture and simply reflect that the Covid-19 pandemic did catch us all off guard as a, hopefully, once in a lifetime event.

Needless to say, pandemic risk may certainly rise higher than rank number 60 for Aon’s next report, but the more important takeaway here is our industry’s approach to helping businesses become more resilient – surely insurance should be a vital part of the solution for commercial clients responding to risk, rather than playing the “small role” Aon suggested?

As Rory Moloney, chief executive officer for global risk consulting at Aon, said: “This is only the beginning of a much more long-term evolution in risk management.”