Experts may have been warning about the threat of a global pandemic for some time, but that doesn’t mean organizations were prepared for one. In Aon’s recent survey, “Reprioritizing Risk and Resilience for a Post-COVID-19 Future,” 82% of respondents said that they did not rank pandemic or other major health crisis as a top 10 risk before COVID-19.
However, the past year has now upended that approach, and leaders have to start preparing for big shocks and not just anticipated losses, according to Aon.
When it comes to pandemics specifically, organizations have had to re-evaluate any plans they had in place before the coronavirus that ended up not being effective due to the scale of the pandemic’s impact.
“The pandemic plans that did exist didn’t have much impact on the outcomes for organizations. They all scored about the same on the continuum of reacting, recovering, and reshaping, whether they had a pandemic plan or not,” said Joe Galusha (pictured), managing director of casualty & risk control for Aon Global Risk Consulting. “For me, all of that spells out that we need to rethink, as an industry, long-tail risks, especially those things that have an impact over a longer period of time, since most plans are around short-term impacts and issues, and geographically-based issues.”
Not only has COVID-19 revealed the weak points in organizations’ risk management planning, but it’s also shown that the insurance industry needs to approach its offerings differently, considering the limitations of insurance.
“We’re seeing, for instance, 25% of organizations are going to have an accelerated review of their enterprise risk management approach,” said Galusha, adding that another 30% are going to investigate a new captive and 65% will look at new risk financing alternatives. “We really got a sense of how clients are viewing enterprise risk management, and insurance buying is one element of it.”
For insurers, Galusha predicts that there will likely be more capacity for this type of risk down the road, similar to how cyber has evolved as a risk, and coverages for threats like ransomware and breaches became more readily available to insureds.
In the meantime, there continue to be conversations around how governments will contribute to pandemic risk insurance programs, which could also impact the development of risk management and risk transfer planning, but Galusha doesn’t expect that clients will wait around to see how such plans develop before battening down their risk management hatches.
“The idea that the cavalry is coming doesn’t seem to be something that our clients are looking at,” he told Insurance Business. “They’re looking more towards how the insurance market will evolve to support them and other risk management mitigation strategies, like focusing more on that long-tail risk.”
The Aon survey revealed exactly how organizations are approaching the expansion of board responsibilities and the risk management function without their organizations. For example, 68% of respondents are rethinking business continuity management and are looking at it differently than they did before COVID-19. One way they’re doing that is by ensuring that they don’t have a concentration of resources in a certain city or region, in case of shutdowns and outbreaks similar to the ones we saw over the past 12 months.
Additionally, noted Galusha, “33% are accelerating their review of insurance … and 43% will increase their focus on total cost of risk programs. What all of that tells me is that our clients are going to rethink the role of the risk manager – and the concept of the insurance buyer versus a true risk manager – and boards are going to be asking more of their risk managers going forward.”
