The firm’s chief executive believes organisations have been ‘wasting their money’ on broker advice if pandemic risks have not been mentioned

Brokers are to blame for not flagging the seriousness of pandemic and epidemic risks to FTSE 100 companies, according to independent outsourced insurance buyer and claims resolution business Mactavish.

The firm’s latest research, which analysed 2019 annual reports of FTSE 100 companies, found that only 13 businesses referenced pandemic or epidemic risks as material to their business.

Of the 88 businesses that had published their 2020 reports at the time of Mactavish’s research, 82 now mention pandemic and epidemic risks. Some of these organisations identified Covid-19 as a regional or national issue from March this year.

More specifically, Mactavish found that one FTSE 100 firm did not mention Covid-19 at all in its report, published at the end of March. Instead, it issued an update in April stating that the pandemic “will impact our previous guidance for 2020”.

Another company that published its risk register in February 2020 only made one minor adjustment to the report to acknowledge the potential risk of epidemics versus last year.

For Mactavish chief executive Bruce Hepburn, this lack of boardroom understanding around pandemic and epidemic risks falls at the feet of insurance brokers advising these businesses.

He said: “Given the frequency of epidemics and pandemics and some recent high profile ones such as SARs and MERs, I am shocked that so many FTSE 100 companies gave little or no reference to these when discussing the potential risks they face.

“You also have to ask why this is, and insurance brokers and other advisers are substantially to blame.

“Brokers describe themselves as an integral element in their clients’ strategic risk management armoury. However, many are now too focused on sales and price-driven competition.

“Instead, if they want to maintain their role, they need to take a genuinely strategic and empirical approach to risk. Brokers need to stay ahead of the curve, but too many fail to do this and the coronavirus crisis and the impact this has had on businesses is a good example of this.”

Risk management failure

Mactavish believes its findings depict a “global failure of risk management”, especially as influenza pandemics are reported to occur every 10 to 50 years, it said.

The World Health Organisation also records an average of 187 epidemic events each year.

Hepburn continued: “Despite our belief in the strength and professionalism of corporate leadership, understanding and management of risk is still immature at c-suite and boardroom levels.

“The reality is that risk assessment is far from an empirical process; all too often attitudes to risk are formed by last year’s crisis and this year’s headlines.

“Risk reporting should be a powerful tool to explain to investors how a company is protecting itself from the downside. Instead, they are often bland and backward-looking.

“Ultimately, risk has been an under-resourced function within companies that is too often removed from critical decision making.”

Time for review

As a result of its research, Mactavish is asking board members and executives to review their attitudes to risk management.

“Those responsible for overseeing and managing companies should interrogate the empirical basis of their risk reporting in exactly the same way they might review any other area of corporate strategy,” Hepburn added.

“They should be looking at the flow of risk information within the company and seeking expert advice from brokers, consultants and specialists in the same way that they might approach entering a new market or adapting their supply chains.”

Hepburn also called on companies to look more closely at how they have been served by their insurance broker, to ensure they haven’t been “wasting their money”.

He said: “They should also question the advice that they did receive. Did supposed risk experts, such as insurance brokers, raise pandemic risks and if not, why not?

“In recent years, brokers have repositioned themselves as ‘masters’ of risk in the broadest sense. They didn’t simply want to manage transactions on behalf of clients, but instead sought to carve out a more strategic role for themselves.

“Companies that have been paying for this sort of strategic advice will now feel that they’ve been wasting their money.”