Julian Kirkman-Page reflects on how risk managers can offer value to their businesses in a volatile era
The nature of business risk is going through a dramatic revolution and, at the heart of it, the role of the risk manager is changing profoundly. With the world becoming more connected, both strategic decision-makers and risk managers must embrace exposure in its broadest sense – by taking into account an enterprise’s entire business network when assessing an organisation’s business risk, from key suppliers to key customers.
Every corporate risk register, or what we call ‘corporate risk stack’, includes not only traditional risks (such as health and safety) but also more intangible risks, such as reputation and cyber. It is these risks that trouble risk managers – they cannot be controlled or mitigated effectively, partly because they can be impacted by external events.
The current coronavirus outbreak is the most obvious example of an event that can impact and disrupt an enterprise’s business network. The reaction and disruption from the outbreak is causing supply chain delays that are affecting both businesses and households – from a shortage of components for manufacturing to a shortage of hand sanitiser. It is no surprise that business interruption and contingent business interruption are at the forefront of many risk managers’ minds.
Insuring the uninsurable
Many corporates maintain operational or enterprise risk management departments that focus on internal controls, governance and meeting regulatory requirements. Some corporates may also maintain a separate insurance department to focus on statutory requirements, such as employment liability and third-party motor, in order to protect the physical assets of the company.
However, more enlightened risk departments are realising that there is business potential in merging these risk and insurance functions to assess how previously uninsured or even uninsurable risks – what we call ‘insuring the uninsurable’ – can be transferred off the balance sheet. This frees up balance sheet resources to target new business opportunities.
The key element underpinning any such opportunity is access to data. No (re)insurer or financial company is going to underwrite any amount of risk that cannot be quantified. In this brave new world of risk transfer, though, the (re)insurance community needs to think outside the box. Rather than offering distinct product silos – say a cyber policy – to corporates, they need to offer a holistic solution that meets the corporate’s business needs.
If (re)insurers continue down their current path of shoe-horning risk into a collection of policies that do not match a company’s business, risk managers may be forced to turn to other alternative methods of risk exchange, such as captives.
It is by ‘insuring the uninsurable’ that risk managers can not only quantify previously uninsurable risks such as reputation but also help to free up the balance sheets for their organisations. A move that would allow the organisation to maximise their opportunities and expand their business.
Julian Kirkman-Page is a consultant and principal at Russell Group
