Risk managers who come to insurers with a clear view of their own vulnerabilities and keep that conversation going all year will be better placed as risks become more volatile, according to Miriam Havergal (pictured), senior vice-president and technical director at Zurich Canada.
Speaking to Insurance Business, Havergal said underwriters can no longer judge a risk on its own.
“It’s no longer just taking a risk in isolation,” she said. “You now need to look at scenario testing.”
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That means looking past a customer’s revenue and building values to how its supply chain could fail, Havergal said, including suppliers several steps removed.
“Where is their tier-three supplier? How is that tier-three supplier, say, linked to other customers?” she said.
The focus for underwriters is shifting from price to how cover is put together over time, Havergal said.
“No longer is it really around pricing risk; it’s really getting that structure more long term for the future, and event preparedness as well,” she said.
Over the past five to 10 years, Havergal said, “everything’s been becoming a lot more interconnected.” Global supply chains are under strain from climate change and geopolitical tension, she said, pointing to the disruption in sunflower oil supplies after Russia’s invasion of Ukraine.
Fast-moving technology has also concentrated production among very few manufacturers, Havergal said.
“Now we have a very small supply network of things that go into everything: cars, gaming consoles, everything like that,” she said.
In the past two years, protectionism has added a new layer, Havergal said. As companies move production closer to home through nearshoring and friendshoring, suppliers and manufacturing plants that were once far apart can end up exposed to the same climate event, creating accumulation risk businesses didn’t previously have to consider.
Wildfires show how fast the picture is changing, she said. The Jasper wildfire, seen as a generational event, happened only two years ago, and similar stories have come out again this year.
“It’s not if, it’s not when, it’s where,” Havergal said.
Havergal said Canadian businesses know the major risks, from supply chains and AI to cyber and climate resilience. The gap is in how prepared they are as those risks change.
She pointed to a recent attack in France in which hackers took control of supermarket refrigeration systems, causing food spoilage and creating a fire risk.
“You’re starting to see more of that cyber risk impact physical, not just data and software,” Havergal said.
That raises questions for businesses that don’t think of themselves as exposed to web-connected risks, such as a supermarket chain, she said. The same problem applies to climate.
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“Weather patterns are changing, so loss models are potentially not up to date,” Havergal said.
Insurers, risk managers and brokers need to find ways to map future risk when looking back is becoming less useful, she said.
Havergal said the outlook isn’t all bad. Insurers, brokers, risk engineers and risk managers have a chance to move from looking at risk as a snapshot to ongoing stress testing and scenario testing, rather than a submission with updated values once a year.
The industry’s old goal of maximum risk transfer no longer fits, she said.
“This is never going to become a risk-free world,” Havergal said. “It’s also not going to go away. It’s potentially going to get more volatile as we go.”
Risk managers don’t need to solve every vulnerability, she said, but they do need to know where those vulnerabilities are and be ready to work with insurers on them.
“The key differentiator would be coming and saying, ' These are my vulnerabilities. These are what I’ve looked at. These are the mitigation steps I’ve already taken. How can I go to the next step?’,” she said.
From there, insurers and clients can structure cover for the long term so it doesn’t swing with each volatile year, Havergal said. Talking through a risk such as wildfire while it is happening, rather than waiting for a renewal that may fall months later, lets both sides adapt as conditions change. Year-round conversations also mean less time starting from scratch each renewal and more time on the details, she said.
Havergal said she sees the volatility as a chance for the industry rather than only a threat.
“There are always opportunities elsewhere, and that’s what makes this industry so exciting,” she said.
