Don't forget the micro risks

There’s a saying that a small leak will sink a great ship. That’s especially true in risk management, as micro risks may end up being overlooked due to the presence of overarching macro risks.

But first, what are the differences between micro and macro risks?

According to Tze Way Yeong (pictured above), head of risk engineering services, Asia-Pacific at Swiss Re Corporate Solutions, micro risks are site-specific risks, such as fire, explosions and floods. Despite being called micro, these risks’ impacts can be amplified on a larger scale, especially if the site is a link in a global supply chain.

“A defective part, for example, is a micro risk that can cause large-scale product recall,” Yeong said. “Other sources of micro risks include natural catastrophes and man-made disasters. These micro risks typically translate to property and casualty risk, as well as liability risk.”

On the other hand, macro risks are larger systemic risks involving trends that affect entire industries. These include climate change, pandemics, geopolitics, war, and market disruptions.

“[Macro risks] are more frequently featured in the news and are perceived as top risks in risk management surveys, but it is important for businesses to remember that micro risks, somewhat counterintuitively, also can cause very large-scale impact,” Yeong said.

Due to the multiple accelerating “megatrends” that are reshaping industries, many business leaders pay attention mostly to macro risks. This, according to Yeong, may cause them to lose sight of the many and often connected micro risks that can pose significant threats to business resilience.

“Viewed in isolation, micro risks, such as a fire incident at one manufacturing site, may not seem to be catastrophic,” Yeong said. “Yet, when examined as part of today's interdependent network, it quickly becomes clear that a single vulnerability could have large-scale and global repercussions.”

In one example he cited, a three-day blaze at a semiconductor plant in Japan resulted in a four-month-long disruption amid the global chip shortage. The fire not only had implications to the company's bottom line but also affected the already-challenged supply of microchips for the automotive industry.

“Examples such as these highlight the importance for companies to not only look at mitigation measures at their facilities, but also monitor the entire supply chain ecosystem – from procurement to distribution – for multiple micro factors across several categories,” Yeong said.

According to Yeong, while businesses can never fully eliminate risk, they can learn to identify and effectively manage a broader range of micro risks. By leveraging some of the new tools and the expertise developed by insurers and risk engineering experts, companies can mitigate risk at a more granular level and be more resilient.

Insurance can cover financial losses when an insured event occurs, but companies often suffer additional losses due to loss of market share, reputational damage and challenges in restarting operations, among others, Yeong said.

“Insurance alone will not prevent these risks from becoming real incidents,” Yeong said. “Regardless of the risk, the most effective response is to become more anticipatory, and to strive constantly to improve risk management plans and capabilities, adopting where possible the practices and approaches developed by experts. This is where risk engineers from insurance companies can work with clients to help identify and mitigate some of these site-specific risks to minimise the chances of a loss event happening. In this regard, insurance and risk engineering services are complementary.”

What is risk engineering?

Risk engineers conduct site surveys and provide recommendations for the business to act upon to minimise property, casualty and liability risks.

According to Yeong, the risk engineering services function plays a vital role in risk mitigation, especially in today’s evolving risk environment. Aside from risk engineers’ deep risk knowledge and vast industry experience and expertise, the function also offers tools and methodologies that help businesses in identifying, assessing and mitigating risks. Risk engineers can work with corporates to assess the criticality of production lines and identify measures to overcome bottlenecks

“As the range and complexity of risk continue to expand, it is vital for risk engineers to help businesses mitigate risk at the micro level and lay a broad foundation for a more resilient business,” Yeong said.

Source : insurancebusinessmag.com

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Wells Fargo chief risk officer announces retirement

Wells Fargo & Co. has revealed that its chief risk officer Amanda Norton will be leaving the financial services firm after four years at the helm.

In a staff memo obtained by Reuters, the banking giant said that Norton will be retiring at the end of June and a replacement will be named in the coming weeks.

Norton joined the company in June 2018 from rival JPMorgan Chase & Co., months after the US Federal Reserve’s imposition of an asset cap and the Office of the Comptroller of the Currency’s (OCC) consent order related to Wells Fargo’s sales of auto insurance and mortgage products.

She played a lead role in overhauling the firm’s risk management framework as it faced record fines and restrictions due to its sales practice scandals.

Norton was one of the first outsiders brought in directly to the firm’s top leadership team, which now consists mostly of executives hired from other companies, according to Bloomberg.

“Under (Norton's) leadership, we have made tremendous progress, and our risk organization is completely different from what existed when she arrived,” Charlie Scharff, chief executive officer at Wells Fargo, wrote in the memo. “Mandy has strengthened all areas of risk management – financial and non-financial – and enabled heightened oversight of our lines of business, with chief risk officers aligned to each one.”

In a separate memo also obtained by Reuters, Norton said she was retiring to spend more time with family and on personal pursuits.

“Living through a pandemic teaches you things, and I’ve realized that now is the time to do some things I want and need to do outside of my career,” she wrote. “There’s still a lot to do… and I am confident in the deeply talented team we have to continue building on the foundation we’ve put in place.”

Wells Fargo has been struggling to satisfy regulator’s demands to adequately remediate customers impacted by its mis-selling scandals, Reuters reported. Last September, the company received a fresh regulatory sanction over the alleged slow pace of addressing certain issues. However, there also have been positive steps, including the lifting and expiration of regulatory orders from 2015 and 2016, respectively.

Source : insurancebusinessmag.com

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Climate and ESG increasingly crucial in risk management

Multiple recent scientific findings have suggested that the climate change crisis is worse than previously estimated and immediate action is needed to mitigate its effects. Investors are increasingly aware of these issues, with ESG (environmental, social and governance) issues now playing a major role in their business decisions.

In response to the growing importance of these factors, risk and capital management services provider Conning recently incorporated indices dealing with climate and ESG criteria into its GEMS economic scenario generator software.

The new models, Conning said, allow risk professionals to easily incorporate projection data based on climate- and ESG-weighted indices into their stochastic modelling of equity and corporate bond returns. These allow financial risk professionals to explore the possible impact of climate change and ESG-related factors on asset allocation strategies.

According to Matthew Lightwood (pictured above), Conning’s head of risk solutions, while there is some overlap in climate change and ESG, the issues involved in each are slightly different.

“Climate tilts toward a focus on overlaying natural and transitional risks onto more traditional measures like market and credit risk,” he told Corporate Risk and Insurance. “ESG, meanwhile, is more of a data collection, standardization and disclosure challenge.”

Risk managers need to properly account for climate and ESG indicators in their models, and failing to do so could prove detrimental to the company’s business, Lightwood said.

“Insurers, for example, could face a wide array of issues and significant market consequences,” Lightwood said. “If they are unable to properly model climate transition and decarbonisation scenarios, for instance, their portfolios may not be effectively constructed to meet liabilities over the long term.”

The field of climate science is constantly changing, as shown by recent updates to projections painting a grimmer image of the future. Risk managers must be on top of these updates and factor them into the business’ decisions.

“New climate events and data are changing how we think, measure, and ultimately allocate assets,” Lightwood said. “The same can be said for risks associated with ESG – it is rapidly becoming the case that companies need to be able to access their assets’ ESG scoring in an on-demand snapshot and adjust portfolios as necessary. The less informed companies are, the more likely they are to miss an opportunity, and the universe of solutions becomes smaller and more expensive. Insurers also need to think how to approach the analysis of climate risk from a quantitative perspective and how this will drive the qualitative discussions that are needed in the short to medium term to satisfy regulatory requirements, particularly around the Own Risk and Solvency Assessment (ORSA).”

The pandemic has made many businesses more reliant on technology to facilitate operations remotely. According to Lightwood, this has increased the demand for more advanced methods of risk management.

“Many companies are looking to technology providers such as Conning to build best-of-breed, software-as-a-service and on-demand risk platforms that can leverage rich datasets, new kinds of scenario analysis, and, in particular, sophisticated stochastic modelling techniques that go beyond deterministic models,” Lightwood said. “This has proven truer following the pandemic, both because of the increased attention now placed on climate risk matters, and because of the technological realities of remote work.”

In the future, Lightwood expects the role of climate and ESG factors in risk management to grow even further.

“As ESG frameworks continue to evolve and mature and climate risk gains greater mindshare, we are likely to see more and more of the investment process guided and impacted by these considerations, and to this extent, more rulemaking and regulation is likely as well,” he said. “This augurs an exciting time for risk management, as we’ll see far more attention paid to each aspect and a new competition could well unfold as insurers and their investment managers stake their own claims to leadership on these issues and their approach to solving them.”

Source : insurancebusinessmag.com

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Technology to massively reshape risk control

The risk control profession has massively changed of the past 50 years, and is set to change even more in the near future, according to an industry white paper by the risk management business of insurance giant Sompo.

The report credits the evolution to technological advances and an enhanced focus on property and employee safety, with more improvements expected over the next decade. To put it into perspective, a single modern smartphone is much more powerful than NASA’s combined computing power that first got man to the moon, illustrating how much today’s devices can accomplish.

One important shift, noted Victor Sordillo, the report’s author and director of international

risk control services, Sompo Global Risk Solutions, was the shift from the underwriting surveyor departments of the past to loss control services. These teams are now staffed by risk control engineers and risk control specialists.

“The name change reflects the transformation of our role from surveyor to consultant,” Sordillo said. “We no longer just conduct surveys; instead, we are tasked with identifying the risks, quantifying the potential losses, and developing solutions to control, eliminate or mitigate the loss potential – our role has grown exponentially.”

Today, most risk control professionals focus on unsafe acts rather than unsafe conditions, as unsafe acts (or non-acts) are responsible for around nine out of 10 accidents.

According to Sordillo, technology is so rapidly transforming how risk professionals conduct business, that it’s impossible to accurately predict how the industry will look like after 50 years. However, there are still some insights regarding the possible trajectory of risk control.

“Today, most safety professionals still focus on prior history to predict future loss, yet in the near future, we will be better able to predict losses based on data analysis and the relationship to changing technologies and the environment,” he said.

With the rapid growth of computing power, especially over the past 30 years, risk control professionals will be able to make more accurate projections, decisions and actions based on not only historic data, but activities in real time. This could even make it possible for workers to be automatically warned of danger before it can be recognized by humans. It can also be used to address potential issues even before they occur.

Today, the Internet of Things provides sensors that can detect water leaks, fire, or security threats such as intruders. In the near future, the report predicts IoT will be able to predict losses from any source based on the conditions of the property, without human intervention. Elevators can be taken out of service automatically if the system detects a hydraulic leak or frayed cable. A building’s shutters will also be closed if a hailstorm is detected.

Smart cameras in industrial production areas may be soon able to recognize improper actions of employees, such as not wearing personal protective equipment, neglecting to clean up spills or reckless movement.

Sordillo predicted the increased use of virtual reality in training personnel, simulating repairs or maintenance work. This is especially important in situations such as today’s COVID-19 pandemic, where travel and access to job sites may be restricted.

While advanced technology will change how work is done, it will not eliminate accidents nor make risk control experts obsolete.

“I expect the risk control specialist role to become increasingly important as new exposures such as drone traffic, space exploration, and micro technology expanding the need and types of risk evaluation and safety solutions,” Sordillo said. “Considering climate change, pandemic identification and control, years of environmental abuse, and rapidly increasing chemical development, the safety professional is ensured a prominent position in the future world.”

Source : insurancebusinessmag.com

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CEO on what recent Goldman Sachs deal says about the future of risk management

Last month, Lloyd’s Register announced the sale of its Business Assurance & Inspection Services division to funds managed by Goldman Sachs Asset Management, a move which has established the division as an independent business, under the name LRQA. Paul Butcher (pictured), who has been named CEO of the new business, noted that the name was chosen to reflect the firm’s heritage and experience in the assurance and inspection market.

“The decision to sell was driven by a strategic review within Lloyd’s Register that identified that there was significant opportunity for both sides of the business, but this would require greater focus and investment to maximise the potential,” he explained. “In Goldman Sachs Asset Management, we have a globally admired business, who believe in our strategy and will back us to deliver it.”

One of the attractions of the business to Goldman Sachs was the strong alignment both businesses shared on strategy, he said, and while the direction of travel will not change, LRQA will move much faster. Being an independent business will create greater focus, allow it to be more agile and easier to do business with, as well as opening up new investment opportunities.

For Butcher, there is a fascinating symmetry to his latest step in his career, as the three distinct phases of his working life are now colliding - having started in finance, before moving into technology and then joining LRQA in January 2018.  

“As our sector experiences rapid digital transformation,” he said, “there will be increasing opportunities to partner with clients to manage risk - sustaining growth, creating value for brands, minimising complexity and finding cost, time and administration efficiencies in the process.”

It’s interesting to see that c-suite executives are increasingly seeking out strategic partnerships that will help them manage their risk more effectively, Butcher said.

“I don’t believe the fundamentals of those relationships will change,” he said. “Our value will always reside in the quality of our people, the technical expertise we deliver and the integrity that we bring to our work with clients. What is changing, fast, is the way we offer our services. As a business, we have been very quick to adapt to the demands of the past 18 months through technology and our clients have been quick to see the benefits – embracing digital assurance and inspection where it is the right answer, but never at the expense of quality and thoroughness.”

As an independent business, he said, LRQA is now putting more focus and investment into its ambition to lead the industry in digital assurance - using technologies to deliver more efficient audits, inspections and cyber security services; using data to transform risk management; and recognising that assuring both digital and physical assets will be critical for the future.

The future of risk management is a question increasingly on the minds of many across the insurance and risk management space, especially in light of COVID. CEOs across the world are leading businesses that have undergone rapid change, accelerated by the events of the past 18 months.

That experience has in turn hastened the shift from a compliance mindset, focused on meeting a minimum standard, to one of risk management and the ability to adapt, at pace, to changing circumstances.  At the same time, he said, CEOs continue to face a set of fast-changing risks driven by global trends. The sustainability agenda is having an enormous impact across organisations and their supply chains as companies are held to account for their environmental and social impacts.

“Employee well-being – in particular in terms of mental health – is a major focus,” Butcher said. “And as the digitisation of the workplace and operations accelerates, cyber security is critical. The result is that growth, sustainability and ethics have become inter-connected for businesses. Customers are demanding ethically sourced products. Investors are looking beyond performance, to more responsible, transparent practices. Talent is gravitating towards safe, supportive and inclusive workplaces.”

Butcher highlighted that the decision by one of the world’s leading asset managers to acquire LRQA and the investment committed is a strong signal that risk management has high-growth potential. Inevitably, he said, there will also be more focus on risk-based assurance post-COVID as businesses reflect on the experiences and learnings of the past 18 months.

“But I see the growth opportunity in terms of a much more fundamental economic and societal shift,” he added. “For decades, our industry has helped companies use less, source responsibly, operate more cleanly, treat people better and keep them safe. Now, more than ever, to grow sustainably, every business must be able to track, manage and improve these facets of their operations and through a more data-led, technology-enabled approach, we can be the partner that enables them to do so.”

Source : insurancebusinessmag.com

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Woodruff Sawyer names new cyber practice director

Woodruff Sawyer has announced the appointment of Keeley Sidow as cyber practice director. In her new role, Sidow will manage a dedicated team of cyber insurance experts and support the growth of Woodruff Sawyer’s cyber liability practice. She will be based in the firm’s San Francisco office.

Before joining Woodruff Sawyer, Sidow served at Aon, most recently leading the company’s cyber practice in the Western region.

“I joined the team at Woodruff Sawyer because it’s always been a fierce competitor and I was impressed with their deep expertise in cyber, which enables the delivery of unique client solutions,” Sidow said. “Combined with the team’s camaraderie, collaboration, and excellent, client-first service, I’m really looking forward to digging in and being a part of the growth of our cyber practice.”

“Keeley is a true expert in cyber risk and brings phenomenal experience to the Woodruff Sawyer team,” said Dan Burke, senior vice president and national cyber practice leader at Woodruff Sawyer. “We’ve long recognized her ability to provide creative solutions to clients, her dedication to service and willingness to tackle any challenge – skills that are a necessity in today’s difficult cyber insurance market. We are thrilled to have her join us at Woodruff Sawyer and look forward to the positive impact she will bring our clients.”

Source : insurancebusinessmag.com

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