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Marsh releases risk resilience report

Marsh releases risk resilience report | Insurance Business UK

Marsh releases risk resilience report

The COVID-19 pandemic has forced businesses to improve their approach to risk management and develop forward-thinking strategies that will help drive preparedness and build resilience.

Global insurance broker and risk advisor Marsh has published its first ever Marsh Risk Resilience Report to help clients during this challenging time of increased volatility and change.

Marsh conducted a detailed, global survey across nine regions – with nearly 1,000 organizations and representing over 30 diverse industries – to develop the Marsh Risk Resilience Diagnostic, which provides increased visibility into organizational exposures by examining the impacts and interrelation of six emerging risks across core business areas:

  • Pandemic;
  • Cyber;
  • Emerging technologies;
  • Climate/environmental, social, and governance (ESG);
  • Regulatory; and
  • Geopolitical.

The report found that one in four companies do not align their risk management and insurance buying processes to long-term growth strategies. Consequently, the respondents' answers suggested that organizations are placing too much emphasis on certain risks, primarily those that pose an imminent threat. Meanwhile, they overlook other risks that the industry perceives as slower to evolve but have similar pervasive impacts.

Despite broad consensus on the rising significance and potential threat posed by the six risks, only 25% of organizations are evaluating or modeling the impact of emerging risks on their businesses. However, Marsh warned that clients or customers would be most highly impacted by five of six risks.

Marsh's report stated that the improving resilience involves four common steps and behaviors:

Anticipating risk

Marsh detailed four factors that can help organizations anticipate risks better:

  • Measurements of risk aggregation and interdependencies across the value chain to help show the degree of contingent business interruption risk present;
  • Stress-testing metrics, including those that will help determine how much stress the organization can withstand and at what points in the value chain;
  • Early warning crisis-event metrics, which can guide early decision paths during an event's initial days; and
  • Metrics on essential supply chain partners to help evaluate counterparty risk.

Connecting risk to strategy

The report explained that resilient organizations typically align through a collaborative process and seek expert help in assessing their preparedness to complete the resilience journey.

“Without such collaboration and counsel, organizations will likely struggle to anticipate risks, which will impair their ability to develop effective response plans,” the report said.

Avoiding gaps in the perception of preparedness

Marsh stated in the report that resilient organizations assess the risk terrain and determine whether they have the necessary resources to navigate it.

“An accurate perception of organizational preparedness is necessary because a false sense of security can halt an organization in its tracks,” Marsh added.

“The consequences of not being prepared can be severe. History has shown that organizations' fortunes can unravel quickly following a shock event. Their options to manage an event may dwindle as circumstances spiral, as they did for many banks during the 2008 financial crisis, and more recently with the hospitality and travel industry during the pandemic.”

Measuring what matters

Marsh's report found that many in the industry are struggling in applying metrics consistently. It advised organizations to deploy effective metrics to measure exposures in their resilience journey.

“For risks that [the] respondents rate as important or highly important, we would expect to find organizations conducting modeling and forecasting at correspondingly high rates. However, only a minority do so, and most of those perform modeling and forecasting only in select areas,” the report said.

“In applying these steps, increased visibility into, accountability for, and collaboration on risk must span across organizational roles. From traditional risk management functions to IT to compliance, legal, HR, and more — along with your trusted risk and insurance advisor — we all have a part to play in bolstering risk management strategies and building more resilient organizations.”