Navigating the perfect storm of risks – Island of Ireland Forum panel debate

A perfect storm of risks has beset organisations in recent years. The pandemic, climate change, the events in Ukraine, and the economic double hit of rising interest rates and concurrent inflation have forced organisations to rethink how they keep up with the speed of new risks emerging, the profile of known risks changing, and how risk management and insurance practices need to adapt.

“The recent increased intensity, velocity and connectivity of risks is becoming the norm – leading to transformational change and a more turbulent world,” Airmic CEO Julia Graham said in her opening remarks.

Some of these risks remained unseen until their sudden arrival took risk managers unaware during the pandemic, suggested Kathryn Benjamin, International Marketing Manager, Riskonnect. Cyber risks, for example, are top of the bill.

“Risk registers for years had been overlooked, but it was too late,” she said. “Newly considered risks included cyber risks, as many of us were working from home, which meant sudden changes for technology and IT security as we switched to using our laptops.”

Employers are facing pressure to meet staff demand for flexible working, and to update their policies, systems and processes accordingly, Benjamin noted, or else they risk losing employees to rival organisations and then face the consequential risks associated with staff turnover.

“Very little is known about the economic, regulatory or even psychological trade-offs involved,” she warned.

Not all of these risks have struck simultaneously, she underlined, meaning that firms cannot risk being either too short-sighted or too long-sighted in their approach.

“The real challenge that they face is combining immediate risk with long-term risk. So focusing on what’s happening now, but also taking into account what’s on the horizon.

Providing an insurer’s perspective, Stephanie Ogden, Managing Director, UK and Ireland, HDI, underlined the toughness of the current risk environment.

“I think the first word on everyone’s lips right now is inflation. In Ireland, we’re seeing inflation at 8% to 9%,” she said.

However, the true figures can be much worse depending on where you look, Ogden suggested.

“In Ireland’s construction industry, there is actually 20% inflation, based on the 12-month figure,” Ogden said.

Insurance faces the same inflationary environment, she emphasised, noting energy business as one class that has been hit amid Europe’s energy crisis caused by Russia’s invasion of Ukraine.

“From an HDI perspective, if you look at our claims reserves for risks that we know today, not even projecting forward, we’re having to add hundreds of millions of euros to our balance sheet just to pay for existing claims,” Ogden said.

‘Long-term partnership’ is an oft-used phrase in insurance but would be of particular value in the current inflationary environment, she stressed. In this context, communicating risk management data between policyholders, brokers and insurers becomes more vital, she suggested, something Benjamin echoed in her comments.

“Now’s the time to be optimistic that we can start working together. Communicating, educating and innovating are really important, and I think through being part of events like today’s, there is every reason to be optimistic,” Ogden added.

The panel turned its attention to environmental, social and governance (ESG) factors, an increasing focus, but still something many companies struggle to grasp with a coherent strategy.

“ESG is something for today, not for the future, and it’s in every boardroom from an internal perspective, and from an external point of view, investors are looking at ESG,” said Paul Doyle, Managing Director, Ireland, Marsh.

He outlined the six-point plan put forward by Dr Beverley Adams, Marsh’s Head of Catastrophe Resilience, beginning with a “pulse check” screening process. The next stages involve putting together a roadmap, a modelling timeline (vital as regulatory scrutiny increases), followed by testing, implementation and the use of insurance for gaps identified within the plan.

“It’s a step-by-step approach, and we offer free consultation. Not every organisation is the same and they all have different levels of maturity with regard to ESG, but it provides shape to the whole process,” he added.

Turning to the importance of building resilience, insurance broker Howden has launched its own recent research into the threats posed as companies seek to navigate current storms and grow in a sustainable way.

Risk managers are having to adapt to an almost unprecedented combination of factors, noted Adam Reed, Managing Director, leading the Large & Complex Risk team, Howden, from inflation, supply chain issues, staff shortages and retention challenges through to systemic risks such as cyber and climate change. 

“Risk managers’ requirements are changing constantly and each faces their own unique set of problems and, crucially, the need to smooth the volatility of these factors,” he said.

“The issue of accessing insurer capacity is also an underlying factor now for Ireland, post Brexit, because several large insurers have withdrawn from the market in recent months and alternative routes to the insurance market are essential to maintain competitive tension,” Reed continued.

“The best approach we can take as brokers is to really listen, stop using old solutions to new problems, and create fresh, innovative ideas that address the issues today and tomorrow,” he added.

Systemic risks, supply chain risks and outsourcing risks are intertwined, and regulators are increasingly scrutinising companies that rely on external providers for key aspects of their operations, which can add a compliance angle to strategic outsourcing decisions. Ireland’s Central Bank published new guidance in December 2021, for example.

“They were concerned about how the risk of outsourcing is going to be governed and managed, and the impact of outsourcing on the operations of these firms and directly on the consumer,” said Kate Browne, Chief Operating Officer, McGill and Partners.

“In fairness to decentralised tech, regulators have their finger on the pulse, because we’ve had a global pandemic, war in Europe, natural disasters in Germany and floods in Pakistan,” she said.

Browne cited an example of working with a service provider based in Ukraine facing staff shortages as employees have been called up to the army to fight in the ongoing war.

“That was a very human aspect to this risk, and it became real to us very quickly,” she said.

Companies are dusting off business continuity plans, ensuring back-up resources are in place and developing operational resilience frameworks, in answer to regulators’ concerns and the operational risks themselves.

“There’s a lot of work that has already been done, but a lot more work to come,” she added.

A final question was posed to all. Whilst the panel is proud of the Island’s success in attracting some of the well-known global technology giants to operate there, this has a downside, and that is the drain on some of the future talent needed for the risk and insurance industry. Julia Graham concluded: “We are part of an amazing industry which offers something for everyone – we need to be better at articulating and promoting this.”