The risk management industry must do more to address rising business volatility and greater interconnectedness of risk in the wake of the Covid-19 pandemic, according to Aon. This includes looking beyond historical loss data to predict future risk and also taking more notice of long-tail risks no longer on the immediate horizon.
The global broker has released the findings of its 2021 Global Risk Management Survey, which were presented at the Pan-Asia Risk and Insurance Management Association’s (Parima) annual conference.
Unsurprisingly, the impact of the pandemic can be clearly seen in the changes to the top ten risks selected by more than 2,300 respondents.
This is particularly true for Asia-Pacific firms, which accounted for 337 of the respondents. Business interruption (BI) was ranked as the number one risk, followed by economic slowdown and cyberattacks/data breach.
And while these risks have never featured more prominently in the survey, the greatest jump was seen by pandemic risk and health crises, which rose by more than 50 places to feature at number four. Supply chain and distribution issues also re-entered the top ten at number six.
According to Aon, the top ten risks “strongly reflect the current landscape”, while the challenging market conditions are testing firms’ abilities to manage volatility and make better decisions. There has also been a shift from event-based to impact-based assessments, states the report. It highlights the growing importance of BI as evidence, as well as the interconnectivity of risk.
“Business interruption was once seen as a linear risk but the Covid-19 pandemic has demonstrated how it can affect multiple industries and companies simultaneously and globally,” states the report.
According to Jane Drummond, chief commercial officer, Asia-Pacific Aon, the growing number of BI events has created more interest among clients in new solutions that don’t involve a physical trigger, and greater use of self-retention strategies such as captives and protected cell companies.
The survey also included what Aon considers to the most underrated risks. Two conspicuous omissions among Asian respondents were workforce shortage and climate change, which featured at 19th and 23rd respectively.
According to Rahul Chawla, managing director, southeast Asia and head of wealth management, Asia Aon, firms need a talent strategy to manage this issue. “The war for talent is not just a numbers game. You have to look internally before you go out onto the battlefield.”
The survey also highlighted the need for both risk managers and insurers to look at a wider source of data than historical loss databases to manage risk volatility, according to Aon.
“Historically, risk managers and insurers have learned and made decisions by analysing data from loss events as they have occurred. This approach must evolve in order to proactively manage emerging exposures such as complex supply chains; we can’t rely solely on the past to inform future risks,” said Rory Moloney, chief operating officer for enterprise clients at Aon.
One encouraging result from the survey was the 11% increase in risk readiness among Asian risk managers – the biggest across all regions. The fact that this investment has come during a pandemic is all the more impressive, said Drummond.
Nevertheless, the survey shows that risk managers and insurers must be more proactive about managing emerging risks such as supply chain. “We need to understand the new forms of volatility and interconnectivity, and the long-tail risks and emerging risks,” said Drummond to Parima delegates. “This means preserving your existing capital and looking for new sources of capital.”