In depth: Why resilience is key to an holistic risk management solution

The world is pretty weird. Since the Covid-19 pandemic hit, it seems like humanity has been battered by one crises after another. So much so that the word permacrisis (apparently the word of 2022) has been used to describe how we now live.

In fact, so bizarre has life become that some have suggested a weasel chewing through a wire at the Large Hadron Collider sent us all spinning into an alternative reality.

However, back in the real (but weird) world, this state of permacrisis is having a huge impact on businesses and on the confidence of the people leading them. 

According to the 2023 Aviva Risk Insights Report, only 12% of businesses have confidence in the UK economy compared to nearly two thirds (63%) who have none.

Despite this pessimism though, 40% report that they are focused on growth rather than simply battening down the hatches.

But if they are going for growth, they need more protection than ever before, and it seems that many are turning to risk management services for that sense of security.

“The profile of risk management has increased significantly over recent years due to the lasting effects of the Covid-19 pandemic, Brexit and, more recently, the Russia and Ukraine war and the cost-of-living crisis,” says Chris Andrews, director of risk management solutions at Aviva.

Broadening out from risk management

Traditionally, risk management has been the solution of choice for building and people risks – physical damage and health and safety – but it’s applications have to be much broader now to be able to manage the pressing risks of today.

According to the Risk Insight Report, 56% of businesses rank the state of the economy as their biggest concern, 31% are most worried about the short supply of skilled workers, 23% point to the impact of Brexit, 23% fear a loss of reputation and, for 20%, supply-chain disruption was their biggest worry.

In fact, six of the top 10 risks identified by businesses were economic in nature and, worse than that, they are all interconnected.

To tackle one risk is to take them all on and that kind of effort requires support from the insurance industry – a different kind of support than has been the norm.

“Historically, many businesses put their hopes in insurance as their only line of defence and this is what is biting a lot of them, so they are looking for new solutions around risk management,” says Rochelle Clarke, MD of business continuity consultancy, Succession Strength.

Can’t rely on assumptions

Clarke points to the business interruption debacle during the Covid-19 pandemic as a key example of where that strategy went wrong.

Assumptions were made about what cover was in place and many paid a dear price for those assumptions. But it could be that some good is finally coming out of that sorry episode.

“Brokers have to have the confidence to be able to talk about these issues with their clients. The BI situation was bad, but ultimately understandable because policies have limits. If insurers had paid out on those claims, the market would have collapsed,” says Harrison Law, head of private clients, farming and estates at Cox Mahon Insurance Brokers.

“The upside is that it has made clients become a lot more focused on their policies. Post Covid-19, everyone is looking at their policy, and their broker, and really thinking about how they protect themselves better.”

Likewise, Aviva’s Andrews has seen a definite change in the way that risk management is perceived by the wider business population.

The past three years have created an awakening for many businesses that are now not only more aware of the risks they face, but are more proactive in managing them.

Chris Andrews

“There is a greater appreciation and understanding now of the role of risk management in supporting businesses, and helping them to navigate their way through the unknown,” he says.

“The past three years have created an awakening – of sorts – for many businesses that are now not only more aware of the risks they face, but also more proactive in managing them. We have seen a step-change in businesses moving away from an optimism bias – ‘it will never happen to me’ – to be more proactive and aware of their vulnerabilities.”

Prevention rather than cure

This should be music to insurers’ ears as, for almost a decade now, there has been a growing desire to move away from being the party that cleans up after a disaster to the partner that helps prevent the worst from happening in the first place.

“There is a real opportunity here,” says Will Scobie, MD of Horizon Scan, a business continuity consultancy.

“I’ve noticed that, for the first time in a long time, directors are talking about resilience. We are involved in a number of business groups, and they are all now running events around resilience and disruption.

"There is a real opportunity for the market to not just talk to the insurance person in an organisation. I have been surprised at how open and interactive the board are compared to five years ago.”

In addition to a growing interest in risk management, there is a view that protecting a business is less about focusing on the particular potential incidents and more about understanding the business’ resiliency as a whole.

"A lot of people think business continuity is something different to businesses resilience. They are the same thing, but some people think it’s tactics versus strategy,” Scobie explains.

Education

There is a need for more education around this in parts of the economy, and brokers appear to be best-placed to provide it.

“There are techniques and approaches that follow best practice, which can be brought in by a broker that just aren’t happening at the moment.

We have to push more because the door is open – businesses want to talk about this [best practice], and they are looking to insurance for the answers.

Will Scobie

"We have to push more because the door is open – businesses want to talk about this, and they are looking to insurance for the answers.”

But what does creating resiliency in a business look like in practice? What kind of services and support can brokers bring to their clients?

For both SMEs and corporates alike, it’s all about helping the business figure out what its vulnerabilities are and working with them, using risk management and traditional insurance products, to give them a more rounded form of protection.

“We saw that basic risk management wasn’t flying anymore so we launched Continuity Strength, which translates manual business interruption planning into a digital format, designed specifically for SMEs,” says Clarke.

“In just one hour they can create their own plan that is specific to their business, not just their sector. All the questions are on the website, they complete the survey and, at the end, a customised business continuity plan is automatically created for them. They can then use that to keep the business running in the event of a disruption.”

She explains that it isn’t complicated – it’s a simple plan that helps business reduce the chance of disruption and, if something does happen, limit the impact of it.

SMEs and larger companies

It is a similar picture with larger companies.

“We would support a business in setting up a risk register, and then go through the business impact analysis, and build a business continuity plan around that.

"The insurer benefits because the client is more resilient, the policyholder sees improvements, and is more prepared, and the broker benefits as there are fewer losses in the risks they bring to insurers,” says Scobie.

Product centricity is now a thing of the past

The nature of risk has changed, and it seems the industry’s response to those risks is also changing. A 100% reliance upon the insurance product is now a thing of the past, with risk management and business resilience increasingly front of mind.

It seems that the pressures of the past few years has made everyone in the insurance value chain reappraise the best way to protect businesses from the all the interconnected risks swirling around them. 

And even the dreaded insurer site survey – the insurance equivalent of being audited – is having something of a revival in the minds of clients.

If an insurer is offering to survey, I tell my clients to bite their hand off. It is free advice, and if there are any recommendations, they will make the business more resilient.

Harrison Law

“If an insurer is offering to survey, I tell my clients to bite their hand off. It is free advice, and if there are any recommendations, they will make the business more resilient.  It gives the client a lot more certainty in a claim, which often helps them see the sense of it,” says Law.

“In addition, insurers are being more helpful with their surveys, providing more guidance and being much more customer-focused.”

It could be that the time has finally come for insurance to make that long-awaited shift from expensive clean-up crew to trusted risk adviser.

The opportunity is there for the taking. The only question is whether or not the insurance industry has the appetite to take it.

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