Matt Lacy, interim executive director, QBE Insurance
The Agility and Adaptability report from QBE and Airmic highlights routes to future resilience.
The recent Agility and Adaptability report released by QBE and Airmic has highlighted the “incredible resilience” shown by businesses as they adapted to the coronavirus pandemic. It has also revealed the lasting changes brought about by the pandemic, which put organisations in a stronger position for facing future challenges.
“If there is one positive to be had from Covid, it is that it has been the catalyst for change,” says Matt Lacy, interim executive director, UK, QBE European Operations. “The majority of Airmic members surveyed this year believe their organisation’s ability to adapt operations and execute change in periods of uncertainty has improved appreciably over the course of the pandemic. Those Airmic members now consider their organisations to be more agile and adaptable than they were before. Risk managers have done exceptionally well to manage the uncertain risks that have come their way.”
Even before the first known case of Covid-19 emerged in in December 2019, the world had increasingly become a less predictable place for businesses. According to the QBE Unpredictability Index, almost all of the ‘least predictable years’ have occurred in the past two decades, with the majority occurring during the past ten years. Despite this, COVID was a big shock for most organisations.
“Pandemics are a low-frequency, high-impact risk. This disincentivised organisations from investing more in preparing for an eventuality such as Covid-19, and as a result, when it hit, its effect was calamitous for many,” says Lacy. “Risk managers should therefore be thinking about what other other low-frequency, high impact risks are on the business’s risk register and spend time discussing these risks and mitigation strategies commensurate with their potential impact.”
Nevertheless, the research found that risk professionals in general are still having to focus most of their time on managing more immediate, tangible risks, rather than helping their organisations manage through uncertainty and assess strategic options.
“Understandably, these are largely risk professionals in hospitality and travel sectors, which have borne the brunt of the volatile pandemic situation with the frequent changes of travel restrictions, as well as in the entertainment industries and the public sector,” says Lacy.
One of the biggest lessons from Covid-19 has been the importance of agility and adaptability, and being able to quickly think, understand and react to changing market conditions was critical for many companies during the pandemic.
This was reflected in the research findings of the report, with 28 percent choosing ‘rapid response’ and ‘excellent communication’ as the most important of the Airmic eight principles of resilience.
“A high degree of organisational agility helps a company process new information and react successfully to changes in customer behaviours, manufacturing and/or operating capabilities, and supply chain availability,” says Lacy. “Within the business, it’s about how quickly you, your people and processes can adapt, while externally it’s about how flexibly you can interact with the wider market.”
Routes to greater resilience
As well as highlighting key areas of resilience, the report outlines the actions needed to reinforce each of these. To bolster organisational resilience, processes and systems should support – or at the very least not hinder – rapidly adapting priorities to changing conditions.
“Critical to making this happen is building a more continuous monitoring and decision-making process,” says Lacy.
The report also addresses supply chain resilience, the importance of which has been highlighted by the fact that while most large organisations will have systems in place to address the more common shocks, the pandemic has demonstrated that preparing for tail events is not only prudent but, in many cases, vital.
“Risk managers need to make sure they understand their supplier and distributor concentration and the structure of their organisations’ supply chain, including any geographical concentrations,” says Lacy. “Other challenges to keep an eye on include determining optimal inventory levels, identifying inherent vulnerabilities in supply chains and keeping an eye on supplier financial positions.”
Getting to grips with financial security of your supply chain, keeping a close eye on the solvency of customers, is key to avoiding unexpected loss from non-payment.
“However, assessing solvency and liquidity is no easy task and gaining access to the right information to make this assessment can be even more challenging,” notes Lacy.
Also essential is ensuring your organisation is meeting customer needs.
“In good times, few pay attention to how sales are happening if targets are being met,” says Lacy. “The pandemic brought several existing issues in many sales infrastructures into sharp focus and presented several new ones for good measure. At its core, sales is about people, the customers you are selling to and the sales teams that connect with those customers. Ensuring your sales teams have the right skills and capabilities, and access to the appropriate tools to deal with changing environments, is critical.”
The future of risk management
The report points the way for the future development of risk management, including the use of non-linear modelling.
“Within their arsenal of tools and techniques, risk professionals have largely used scenario planning to help them plan and execute in periods of uncertainty,” says Lacy. “There is an opportunity for them to make greater use of non-linear modelling, given the drawn-out nature of the pandemic with its many twists and turns.
“The management of short term and long term dynamics needs to be better controlled if businesses are to avoid being ill-prepared for whatever low-frequency, high impact risk hits next. Risk managers need better alignment with business priorities, so as to sharpen the ability to develop valuable insights into emerging concerns and help scope innovative risk mitigation solutions.”
He adds that more flexible deployment of resources is also needed, to free up capacity in risk teams for more project-based risk work, as opposed to routine work.
“There is a role here for enhanced analytical skills and methodologies, including the introduction of new data science and automation techniques,” he says. “Risk professionals need greater dynamism in their engagement with stakeholders. This will enable risk teams to engage with institutional and individual biases and blind spots, and help build an appreciation of threats for which evidence may be limited or conflicting. Lastly, engage early with your insurer and broker. Three heads are better than one.”
The insurer’s view
He adds that as an insurer, QBE has always encouraged is risk managers have involvement and have understanding of what the strategic objectives are in a business.
“In order to do that they need to be having conversations at a c-suite level,” he says. “What we try to do is give them some insights that we have from our business for them to share in their businesses and to help them in the process of managing risk.
“We were also able to adjust and adapt our cover quickly during the pandemic in order to accommodate the changing needs of our customers during the lockdown periods. We are continually looking at ways to make placing risks and getting the right cover as straightforward as possible. Product innovation is a key focus for us and we have enjoyed being first to market on a number of packaged and combined products which is a continued area of focus.”
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