02 December 2020

CRE: Covid-19 to elevate risk management but insurance found lacking, finds Ferma survey

According to the survey of more than 300 risk managers in 21 European countries, the majority of respondents expect risk management to play a bigger role post-Covid-19. Three quarters of risk managers believe demand for risk management will grow as a result of the pandemic.

The pandemic should elevate the role of risk management but has highlighted failings in risk financing and insurance cover, according to a new survey by Ferma.

Risk management is likely to be more appreciated and better understood as a result of the crisis, according to Athina Pehrman, group risk manager at Electrolux Professional Group and president of Swedish risk management association Swerma. Speaking at the survey launch webinar this week, Ms Pehrman said she hopes risk managers will be “elevated” and given more access to the board.

 “I hope that [the pandemic] will breathe new life into risk departments, such as bringing in scenario planning in areas like climate change or the increasingly volatile political environment. There is no excuse not to be ready. And when it happens we can act with speed,” said Ms Pehrman, who has been given more access to her board during the pandemic.

Also speaking on the webinar, Melanie Steiner, board member of US Ecology and former CRO at a US-based fashion company, said organisations will now focus more on building resilience and quick decision making. Companies will look to “rewire” their operating models and supply chains to build resilience and agility, she said.

According to the Ferma survey, almost half (46%) of organisations plan to make changes to their supply chains as a result of the pandemic. Some 70% of these organisations expect to source additional suppliers, 59% to revise contract terms, 51% to improve supply chain transparency and 34% to boost risk control, including purchasing insurance.

Both Ms Steiner and Ms Pehrman believe that risk management will take a more strategic role going forward. “We do not see risk embedded in the strategic process enough. The companies that are getting it right are those that link risk and strategy together,” said Ms Steiner. This will become even more important with digitalisation, which is generating some of the biggest risks and opportunities for many companies, she said.

Ms Pehrman hopes that risk managers will be given more access to senior management and become part of the strategic process. “I hope that the risk manager’s role will change from being reactive to proactive. Hopefully we will be included in the early stages, for us to be more proactive and supportive at the table. As risk managers, we need to step up and show our value. Risk management should not be seen as burdensome, but as adding value,” she said.

 “It is time that risk leaders look for additional resources to insure that ERM, crisis management business continuity management and insurance are properly resources and have meaning, and are not just boilerplate or rubber stamping,” she added.

While risk managers made an important contribution during the pandemic, insurance has not fared well, according to the Ferma survey. Two thirds (67%) of respondents said insurance, especially for non-damage business interruption (NDBI), had not fulfilled corporate needs.

 

Some 72% of risk managers said they did not have a risk transfer mechanisms in place for pandemics, while just 5% said insurance has provided business interruption cover for Covid-19-related losses. This suggests there is a “coverage gap at work”, according to Ferma chief executive, Typhaine Beaupérin.

About 60% of risk managers said they would be interested in purchasing NDBI insurance for pandemic or other catastrophic events. However, the breakdown of responses was more cautious. Only 14% said they would be interested in buying NDBI insurance to a ‘very great extent’ and 46% to ‘an extent’, while 23% said they were interested, but ‘not much’.

Ferma president Dirk Wegener said: “Insurance, unfortunately, has not provided the support organisations need for their business interruption. There is a strong appetite for a future financial solution. We have a long relationship with the insurance industry. We want it to be part of a solution by contributing not just risk transfer but also risk expertise to a combined public-private initiative.”

Ms Pehrman said that state and industry-backed pandemic pools might be a possible way forward. However, coverage triggers for NDBI are problematic, while there is a question over what exactly is insured.

Captives are likely to play a bigger role in risk management plans going forward, bridging gaps in insurance cover and managing the hardening insurance market, according to Ms Pehrman. But when it comes to covering pandemic risk, Ms Pehrman was more circumspect. Few captives would have the capital to absorb business interruption losses for a long shutdown, she said.

The survey revealed that many, but not all, risk managers played an important role in managing the coronavirus crisis in their organisation. Just under a third (30%) of respondents were involved in creating and implementing their organisation’s Covid-19 crisis management, with only 17% leading the process. More than 20% have been involved in their organisation’s pandemic communications response, while 23% are playing a significant role in recovery plans.

Just under a third (31%) of organisations included pandemics on their risk register in September last year. However, the vast majority of respondents (90%) felt their organisations were either well or somewhat prepared to deal with the pandemic. Principle risk management tools were business continuity plans (74%) and unspecified preventive measures (59%).

While almost three quarters of organisations had business continuity plans (BCP) in place, these were of limited use when the pandemic hit, according to Ms Pehrman and Ms Steiner. While regularly updated and tested BCPs are useful in a crisis, they had not provided a “roadmap” for the Covid-19 crisis due to its “magnitude” and speed, they said. “Having a BCP is useful, but in itself was wholly insufficient,” said Ms Steiner.

Commenting on the survey, Mr Wegener said the results provide an important insight into the role of risk managers during the pandemic and lessons that will be incorporated into enterprise risk management for the future.

On the back of the survey findings, Ferma called on the European Commission to encourage corporate risk and insurance managers to play a key role in promoting risk awareness and support the development of a business continuity management culture. It also reiterated earlier calls for the EU to create a public-private financial solution for NDBI cover for pandemics and other major catastrophic risks.

 “Ferma has provided an important and timely contribution to the discussions at European level. We look forward to our continued interaction with policymakers on this important issue,” said Mr Wegener.

CRE

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