The need for proactive risk management

The need for proactive risk management | Insurance Business Canada

The need for proactive risk management

In times of elevated risk on multiple fronts – pandemics, war/political risk, cyber and supply chain, to name a few – organizations must engage in proactive risk management to protect their personnel, assets, incomes and reputations.

According to Leopoldo Portes (pictured above), chief insurance officer of JAG Insurance Group, reductions in the workforce, less emphasis on health and safety guidelines and a lackluster effort in adhering to regulations are some of the major challenges facing organizations in today’s business environment. This atmosphere has made it more important for organizations to practice proactive risk management, where organizations can manage both existing and emerging risks and are ready for unforeseen events.

“Proactive risk management is a discipline rather than a process or initiative,” Portes said. “By espousing proactive risk management strategies and implementing them into an organization’s cultures, we improve the probability of successful claims outcomes.”

Among the numerous major issues faced by risk managers today, Portes said the hardening of the property and casualty markets, coupled with supply chain disruption, has caused a spike in pricing and a scarcity in policy availability.

“Before this, climate events around the globe were impacting the market, depleting the insurance pool,” Portes said. “On top of all these factors, cyber threats, including data piracy are on the rise, with no slowing down in sight. Thus, risk managers must understand all these factors, monitoring current policy changes and trends to learn how they can best mitigate risk for their clients.”

While the COVID-19 pandemic seems to be receding in many areas around the world, its effects remain strongly felt. According to Portes, the pandemic upended the insurance industry and magnified the industry’s overarching issues.

“A prominent example is the increase in use of cloud technology and the rise in data breaches and cyber attacks,” he said. “The pandemic forced a significant shift to remote work or telecommuting. This drastic shift meant companies had little to no time to prepare contingencies in their network defenses. Thus, hackers preyed on these weaknesses to infiltrate home networks with little to no security. Secondly, risk managers are focused on addressing the global supply chain issues, since an overwhelming number of clients are seeking improved business continuity programs. Supply chain issues have led to longer lead times, reduced capacity and the need to secure new suppliers. This has led to contingent business Interruption becoming a must have-in the repertoire of proactive management solutions.”

One area where proactive risk management is vital is technology-related risks. The rapid pace of technological development leaves many organizations, whether companies or regulators, playing catch-up.

“Although risk managers have relied on data to successfully navigate the extent of our responsibilities, it is evident in recent history that the importance of gathering, maintaining, and delivering quality and detailed data is a must,” Portes said. “I recall conversations as early as five years back where the ‘old days’ of networking and relationships were coming to an end when assessing and underwriting risk. AI is driving operational and cost efficiencies, as well as strategic business transformation. There has been a necessary shift in our focus to ensure the adjustment to data driven programs. On the front end, predictive analytics are assisting in quality loss control and underwriting. On the back end, predictive analytics and solid claims management are assisting us in improving on loss results.”

According to Portes, AI and machine learning have added structure to significant amounts of data and helped remove inherent biases to provide cleaner outputs in evaluating organizational risks.

“Despite the advent of technology, we are still dealing with inadequate availability quality and quantity of data by organizations that have not caught up to the times and skepticism caused by a scarce understanding of the inherent risks involving AI,” he said.

“At JAG, proactive risk management is one of our core tenets,” Portes said. “We thoroughly assess history, secure detailed data points, use predictive analytics tools, perform site inspections, conduct effective claims advocacy, and provide post loss risk control recommendations. In employing all these strategies, we are more likely to receive a full buy-in from our clients. Our experience has led to more educated and assertive clients. We foster constant, deliberate engagement, and an emphasis on these strategies is undoubtedly creating more risk-averse environments. These strategies not only reduce the frequency and propensity of incidents, but also reduce the severity and overall exposure of the claim. In the pre-emptive stage, we assess and educate. In the immediacy of an incident, we communicate and investigate with haste and precision. In the post stage, we carefully manage the claim and provide post loss education.”