2020 has been a struggle for businesses. The plans put in place at the start of the year were quickly undone with the pandemic and various lockdown restrictions across the globe. As we look at 2021, what have we learned and what will be the priorities for risk managers?
1. Mitigating the long-term effects of COVID-19 on the supply chain
Clearly we can’t ignore the long-term impact of coronavirus. This will be top of mind for all businesses. Even businesses less financially impacted by the virus will be affected by any supply chain issues in a global economy.
Risk managers in both public and private sector entities will be prioritizing business continuity in 2021 and looking for how they can manage supply chain challenges, such as longer lead times, reduced capacity or having to seek new suppliers.
Geospatial analytics can be used to identify pandemic hotspots. Overlaid with other data, such as local hospital information, testing kit availability, vaccination roll out, and government restrictions, organizations can see how close they are to a pandemic hotspot and build a picture of the potential severity of the impact on them.
While this can spot trends, it won’t solve the challenges. Businesses can bounce back by innovating processes and being acutely aware of the impact of their new risk profile. This requires effective enterprise risk management (ERM) – and good enterprise risk management software technology.
2. Build protection and resilience
COVID-19 has caused more people to work from home and more transactions taking place online. Cloud technology has increased in importance in 2020, which presents a challenge for cyber security. For companies that used to have centralised teams working in centralised offices, this new way of working has presented challenges in the way that teams communicate and gain access to the information they need, when they need it. That paper file in the office, is it also available online? If it is now, is it secure and only accessible to the people who need it?
In June, Gartner predicted a worldwide rise in security spend over the second half of 2020 despite businesses cutting costs. We expect this trend to rise into 2021, and risk managers should present their case for some of this funding to be spent on cloud and data security in particular.
It’s not just your own systems that you should be focusing on; consider who in your supply chain also has access to your data and systems. Using a secure integrated risk management system to work with suppliers, rather than sharing spreadsheets for example, can help reduce the risk of breaches.
3. Innovate to reduce insurance costs
In 2021, insurance managers will continue to face pressure to reduce insurance premiums or at least battle against the rising prices. Aon’s Q2 2020 Global Insurance Market Index found that premiums are increasing across the global insurance market, with average rises between 11% and 30%. With a hard insurance market expecting to continue, risk managers will need to reassess risk appetite and negotiate better renewal terms with insurers, which means accurate and reliable data, presented in the best possible way to differentiate from others.
A typical FTSE 100 or 250 company operates a lean insurance team and may only have one risk manager dedicated to insurance. Negotiating better renewal terms requires complete, accurate data; in this model, there simply is not the resource to do this manually.
To maintain data integrity, insurance managers need a modern risk management system. This can improve accuracy with online forms, pre-filled values and easy-to-use data input tools which enable a simpler data collection process. This can also help adoption from the field where the data is sourced; we found many clients starting their process earlier this year in a bid to secure the best deal, so easy-to-enter information and high adoption levels were key.
A dashboard will give risk and insurance managers an overview of key information, and analytics and custom reporting can quickly pull out the data needed for insurance renewals.
If insurance managers can give their brokers and the markets comprehensive and accurate information quickly, they will have better bargaining power during the renewal process. This should give the business better terms, and premiums will reflect actual risk, which can often mean significant cost savings.
4. Use good data to manage risk appetite
As well as negotiating better renewal terms, businesses will also be reassessing their risk appetite and considering alternative insurance options.
The A.M. Best market segment report found that European captives have proved resilient to the pandemic. The hard insurance market has opened up opportunities for captives, with the expectation of new formations and an increase in usage for existing.
Captives need to take ownership of their data to understand what risks they want to carry and those that they will put to the insurance market. Good data and analytics are both vital for this.
Meaningful analytics can help identify trends, and even model predictions when combined with third-party insights. Analytics tools will be essential for captives when reassessing their risk appetite in 2021.
5. Use data science to reduce claim costs
Data science is often forgotten during the risk management process, yet it can make understanding an organization’s risk portfolio much easier.
Data science uses artificial intelligence and machine learning to put a structure to huge volumes of data, remove bias and highlight where risk managers should probe more.
Until recently, data science has typically required experienced data scientists to make sense of it. With a modern data science solution, data can be interrogated by inputting conversational language – making it suitable for general users.
All users, regardless of their experience with AI, can now quickly discover insights, identify patterns, generate risk predictions based on a huge range of data sources and benchmark their data against that of their peers. This can be used to identify the potential frequency and severity of different types of claims which can be used to focus resources on reducing the impact.
The beauty of all this is that AI can adapt as technology improves, or when new streams of data are available. Moving forward, risk managers who harness the power of AI and data science can gain a better understanding of their risk portfolio and drive optimal outcomes.
As we look ahead to 2021, risk managers can provide even more value to their organizations by mitigating supply chain risks, building resilience, using innovative technology, improving data integrity and leveraging AI and data science.
Next Steps
Steve Cloutman is Managing Director at Ventiv Technology. If you would like any further information on the topics discussed here, please contact him at STEVE.CLOUTMAN@VENTIVTECH.COM
