Boards must plan for disruption too, not just recovery: Swiss Re’s Rüsch

Boards must look beyond recovery and use long-term risk scenarios to guide prevention, investment and risk transfer decisions. Swiss Re Corporate Solutions’ Michael Rüsch tells FERMA Forum Today.

Key points:
Resilience starts before a loss
Scenarios sharpen investment choices
Prevention can reduce transfer needs

Boards need to think about resilience as the ability to keep a business operating through disruption, not simply how quickly it can recover afterwards.

That is the view of Michael Rüsch, managing director and head of Switzerland, Benelux, Nordics and Italy at Swiss Re Corporate Solutions, who says companies need to look further ahead when deciding where to invest, what risks to prevent and which exposures to retain or transfer.

“For me, resilience is more than just the recovery,” Rüsch told FERMA Forum Today.

Not every risk can be eliminated, he said. But companies can make strategic decisions before losses occur that protect their ability to continue operating.

That requires more than historical loss data. Insurers may have extensive information and underwriting experience, but Rüsch said the real value comes from turning that into scenarios that show how risks may evolve, and what those changes could mean for the business.

“We are not only talking about what the risks are for the next 12 months,” he said. “We are helping to predict it well into the future. How do risks develop beyond that? At the same time, what does a key risk mean for new risks that may evolve out of it?”

Interconnected risks 

For boards making long-term investment decisions, the question is not simply whether an asset is exposed to one particular peril. It is how that event could cascade into other parts of the business.

“A flood or nat cat risk can easily develop into a major supply chain risk overall,” Rüsch said.

That interconnection can change the economics of an investment entirely. A weather event that begins with property damage, for example, may ultimately disrupt production, labour availability or suppliers – affecting how much capital a company needs and whether risk transfer alone is sufficient.

Rüsch pointed to the 2011 Thailand floods as a historic example. Beyond the human and physical toll, the event disrupted industrial production and international supply chains far beyond Thailand.

“Everyone in our industry remembers the interconnection and how the supply chain was affected by this specific event across the globe,” he said.

The pandemic demonstrated the same principle on an even broader scale. “Covid was not just a risk for us human beings and for lives; it also affected the economy, from supply chains to energy,” Rüsch said. “It is key that we look at these interconnections between the different risks and help companies understand how risks are connected.”

Climate-related exposures are adding another layer. Rüsch said extreme heat and drought can affect not only physical assets, but also workforce productivity, water availability and surrounding communities.

That means assumptions underpinning major investments may need to be revisited more regularly.

A company facing repeated disruption at a flood-exposed facility, for example, may have several choices: rebuild as before, invest in stronger protection, or move production elsewhere.

“What is better: continuously living with the potential for a heavy business interruption, or investing in a location which is much safer?” he asked.

The answer, he added, should be based on the long-term cost of repeated disruption compared with the capital required to protect or relocate the asset.

Prevention before transfer

For Rüsch, resilience therefore depends on combining risk financing with prevention and mitigation. CFOs can still view insurance primarily as a cost, he said, when the more useful question is how best to finance the risk itself.

“We always talk about how much appetite I have to retain from risks and how much I want to transfer,” he said. “Maybe the transfer comes at costs which are extraordinary, so then you also need to invest in prevention.”

Insurers can help companies make those choices by combining risk engineering, exposure data and underwriting expertise with different forms of risk transfer.

“If the traditional way doesn’t work to transfer a risk, there are alternative ways,” Rüsch said, pointing to captives, alternative risk transfer and parametric solutions.

But the insurer’s role should go beyond simply offering a policy. “It’s not just about coming up with a contract which then has 20 pages of exclusions,” he said.

“Being entrepreneurial means also taking risks.”

Instead, Rüsch argued, underwriting knowledge should help risk managers understand how exposures could develop and decide what should be prevented, mitigated, retained or transferred.

Companies will never be able to eliminate every single risk, nor should they try to. “Being entrepreneurial means also taking risks,” Rüsch said.

The challenge for boards is to understand which risks they are taking, how those exposures may interact over time and whether the business can continue operating when disruption inevitably comes.

Michael Rüsch is head Switzerland, Benelux, Nordics and Italy at Swiss Re Corporate Solutions

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