Amid the concerns caused by the spread of COVID-19’s Delta variant, risk managers are also preparing for a post-pandemic environment, taking into account the lessons learned from the past year and changes to the risk landscape.
According to Bernhard Kotanko, senior partner at McKinsey, there are three major lessons risk managers should pick up.
“Foremost, the importance of prudent operational risk management, especially business continuity handling, managing client interactions in a remote and digital way and supporting customers, partners and societies in a new way at scale,” Kotanko told Corporate Risk and Insurance.
“Secondly, as it relates to digital transformation, risk management needs to step up on data and privacy management, cyber risk and conduct. And finally, financial risk management also changed in the pandemic with more attention given to short-term volatility and liquidity, as seen in the volatile market moments of March 2020.”
The pandemic, Kotanko said, emphasized the need for prudent and comprehensive risk management. The shock caused by the rapid global spread of the virus affected many firms’ operations, with some irreparably damaged. Thus, improved risk management and resiliency is imperative.
Special focus must be given to operational risk aspects such as business continuity, data security, cyber and conduct risk, as well as coverage for new ways of digital and remote working.
“More broadly, there will also need to be a review of risk culture and risk appetite to prepare for such scenarios in a more coherent way,” Kotanko said.
The future of insurance in managing risk pools
One of the main drivers of losses during the COVID-19 pandemic was the restrictive measures taken by governments around the world to limit the spread of the disease. This, Kotanko said, resulted in significant business interruption (BI) losses.
“It is unlikely that insurers will want to provide broad coverage for BI in the future, so insurance companies will need to develop more sophisticated systemic risk solutions and catastrophe risk insurance program, while working more closely with governments to address the wider protection gap,” he said.
The pandemic health crisis has led to at least four million deaths worldwide, and many more hospitalized. Kotanko believes that, moving forward, the insurance industry will play a larger role in addressing the health cost of future pandemics.
“With regard to healthcare financing, insurance can play a much bigger role in addressing and financing the healthcare systems in public-private partnerships, as well as pure private models,” he said.