Two risks the industry can't ignore

by Maryvonne Gray 19 Feb 2014

Two risks the industry can't ignore

Health and safety liability is the biggest internal emerging risk affecting the New Zealand insurance industry, says the chair of the New Zealand Society for Risk Management (NZSRM), Geraint Bermingham.

In his role with NZRSM and as director of risk management consultancy Navigatus Consulting, Bermingham said directors and boards were recognising their liabilities to health and safety more as direct result of the Pike River mining disaster.

“That was an example where a board was failing to recognise and manage risk at all levels and ultimately is the key change that’s forced the country to wake up and establish of WorkSafe NZ.”

He said the new workplace health and safety regulator, established in December 2013, has a very clear target to drive improvement in health and safety and that was being reflected in the message boards and directors were getting.

“The actual risk to workers is no higher than it was but there is greater recognition of a risk of liability,” said Bermingham, adding: “The industry is just finalising a course on risk management for prospective directors and while it was previously very much based on the financial risk, now it’s much more broadly based and considers all aspects of risk.”

While also underlining health and safety as an area where risks will emanate from regulatory change, Marsh Executive Director for sales and marketing, Steve Walsh felt the threat of cyber risk was being severely underestimated.

“I’ve heard commentators from the Prime Minister down saying the need to take this way more seriously than we do is becoming evident daily.”

While Marsh and its sister company Guy Carpenter & Co have developed product advice and service around cyber, it’s not registering with the major clients, fears Walsh.

“The feeling I get is people don’t quite know where to start – what does cyber actually mean? Is it the social media aspect, the client data, your own internal systems, client facing stuff? It’s really difficult to quantify and that’s the reason why insurance should never be thought of as the first answer.

“I think it will take a big event, in my experience it often does.”

Walsh’s predictions are in line with the Allianz Risk Barometer Survey 2014 which put cyber as the biggest mover in this year’s barometer, moving up to eighth from 15th Global head of fidelity at AGCS, Nigel Pearson, said threats are evolving at an exponential rate.

“Whereas 10 or 15 years ago it was just hackers doing it for the kudos, today we see organized crime moving into this space, regarding it as an extremely lucrative market,” he said.

“Meanwhile, changes in the legislative environment around the world are making any failure to secure a person’s data increasingly painful for companies in the forms of heavier fines and other penalties.”

Added to that, cyber crime, IT failures or espionage could in turn cause business interruption, loss of reputation or brand value, also top rating risks in themselves.

“2014 will also be a critical year for companies when it comes to dealing with the threat posed by a number of emerging perils with businesses around the world increasingly challenged by a combination of new technological-, economic- and regulatory-related risks,” the report stated.

“These perils are also often interlinked, potentially creating a systemic threat for risk managers.”

Geraint Bermingham gave an example of this if the aviation industry replaces radar with GPS.

“That inherently makes the systems more interconnected and more and more interdependent and therefore conceptually more vulnerable. We’re becoming so interconnected that in many ways the whole world is subject to the same risk.”

Bermingham also listed the Christchurch and Wellington earthquakes as raising the level of natural hazard the country faces to very visible.

The extreme weather currently hitting the northern hemisphere could finally provide the wake up call to the effects of climate change, he said.

Other external factors were what might happen in China. “They’re the biggest driver of economic activity in the world and if they go the wrong way we’re not immune to what’s happening there.”