The fourth industrial revolution, characterised by the rise of technology, is radically changing the approach needed from risk managers today, according to Airmic.
Disruptive technologies and the changing business models that come about as a result are creating “unprecedented opportunities and challenges” for both insurers and risk managers, says the association’s CEO John Ludlow.
“Globalisation and new technologies are transforming the way that people do business. Both at an operational level, but also as you can see with disruptors, at a strategic level as well. We can see that happening at an unprecedented rate over the next few years, and it has already started,” he said at the Airmic annual conference in Liverpool last week.
In today’s world, corporate companies are increasingly built on a foundation of intangible assets – a recent study suggested that 82% of Fortune 500 companies’ value now resides in intangible assets, according to the CEO.
From reputation to intellectual property and business interruption, intangible asset risks are likely to dominate the future landscape.
“That changes everything for the risk manager. Rather than having just the physical perspective, or in the insurance world, a commercial perspective, you’ve actually got to have an emotional perspective as well, and you’ve got to understand how the people that support your business feel about your business,” Ludlow said.
But despite their growing importance, both the risk management and insurance worlds are falling behind when it comes to protecting such assets.
“We’ve been talking for years about the need for insurance to cover risks to intangible assets yet, despite our best efforts, we’ve made very little progress. In some areas, like business interruption, there’s a perception that things have actually gone backwards,” Ludlow said.
“We know that the commercial insurance market is very experienced at protecting physical things like property, but that is not where the future lies for most of its customers.
“Threats to reputation, cyber, supply chains and other intangibles are what really worry them, and insurance needs to be able to find solutions. Otherwise it will cease to be central to the risk management of most large companies.”
Alongside growth in intangible assets, businesses today are increasingly highly leveraged – a potentially volatile combination, according to the CEO.
“Intangible assets and high leverage makes for a pretty fragile environment, so when things do go wrong, it can prove pretty fatal,” he said.
For those in charge of the insurance spend, it’s an increasingly complex picture: “This is a challenge equally for buyers, especially in the way they use and gather data and understand the wider risk picture in order to use insurance strategically and maintain the interest of the C-Suite,” Ludlow noted. “If insurers, brokers and buyers can work together to resolve these challenges – and I am sure we can – then the future will look bright.”