IIG Insights: Risk averse vs risk aware, The evolution of risk mitigation
On the 18th June 2019 the IIG had the pleasure of hosting the 4th IIG Insight session at Hogan Lovells Sandton. Our MC for the morning Keshrie Pillay, welcomed the IIG educational council members, our esteemed speakers for the morning and over 100 attendees to the Insights session. Keshrie also thanked our sponsors, Discovery, Hollard, Marsh and OMI whose valued sponsorship made the Insight event possible.
Peter Links (Marsh) – Past, Present and Future
The opening statement of Peter’s presentation was “the future is already here; it is just not evenly distributed”. His presentation included a look at the past, examining the present and visualizing the future. Risk Management first started in the 1950’s and was driven by economic recession, space travel, espionage, financial crises, which catalyzed the need for this intervention and which then developed over the years. Past risk management practices were characterized by insurance, minimum compliance, risk probability and impact studies. Current risk management practices are characterized by ERM programme adoption, stress testing, scenario modelling and bow tie analysis. Future risk management looks at risk diversification and transfer instruments, behavior analytics, early warning and prevention systems and technological risk mitigation software advancements. Most interesting was a look at the evolving global risk landscape, which illustrated just how in recent years, environmental, technological, and geopolitical threats have come to supplant economic risks as issues of greatest concern.
With the inter-connectedness of risk Peter explained that risk managers had to change their strategies from a siloed view of risk management to one of integrated risk management across the company. There is a top down approach in companies these days with the correct structures that shifts the focus from reporting to that of performance metrics. Peter highlighted the fact that risk management is different across industries and that a more focused approach is becoming increasingly important to apply the correct risk mitigation strategies. The audience got insight into some future-focused risk mitigation techniques and key solutions that futurists are betting on. One example was Predictive Analytics. Predictive Analytics is the utilization of data, statistical algorithms and machine learning methods to identify the probability of future outcomes based on historical data. The value of data analytics and automation within insurance was discussed and the importance this will have in our business, from marketing, claims and underwriting. He touched on social media risks and how hackers can hack into a company’s social media to distribute bad information and influencing their share prices. He emphasized the need for clearly defined policy for Social Media use. At the end of his presentation, he showed a short clip regarding the current Huawei debacle and the consequential risks a ban on Huawei networks presents to the global economy.
Le Roux van den Berg – Risk, Risk Mitigation and Risk Management, and how things can go wrong.
Our second speaker, sponsored by Hollard, was Le Roux van den Berg. Le Roux is a loss adjuster from Lloyd Warwick who specializes in large and complex losses, specifically in the mining industry. His presentation was set from a post loss perspective and how this impacts the risk mitigation process. He started off his talk with a definition of risk-averse, from various perspectives. He believed what it comes down to is risk appetite; this is the determinant when considering which risks an insurer is willing to undertake. He showed a video clip of a tanker off-loading fuel, which resulted in an explosion to demonstrate how an incident can affect one’s risk awareness. In discussion on how risk is evolving, he focused on Risk Culture. To this end, he presented a slide on bow-tie analyses, which highlights the controls that are put in place to manage a risk. He illustrated the gap that exists between controls and the element of human behavior. Le Roux showed some video examples of risk failures which really highlighted risk in the human element. Le Roux drew attention to the link between human behavior and operational failures, which are very closely related. He showed some more real-life incidents and pointed out that the possibility exists that perhaps people do not understand risks as well as they think they do. Examples used highlighted risks associated with not fully understanding installation processes or the quality of material being used in key production plants. Le Roux shared the following for mitigating risks from a post-loss perspective
- Early appointment of a loss adjuster
- Alternative production equipment
- Modified production processes
- Expediting delivery of key components
- Detailed project management
Le Roux elaborated on the Human Risk. He has found that in their practice, 70% of incidents that occur are due to critical behavioral failures and the corporate cultural climate which is a huge contributor. He mentioned that risk mechanics are also poorly understood. To understand the reason for human failures, he spoke about the brain and its processing capability in relation to Maslow’s Hierarchy of Needs and how the state of mind can impact the brain’s processing capacity.
For our presenter the question is not “your risk appetite”, but rather the awareness and understanding of the risk is vital.
Mr. Clyde Troup and Ms. Terashni Pillay
Our third set of speakers was Mr Clyde Troup and Ms. Terashni Pillay from Discovery Insure. Their presentation focused on the definitions and concepts of risk aversion and risk awareness, the need for risk management in light of evolving risks and the tools underwriters use to be risk aware. Our speakers shared some of the macro trends affecting business, the source of value has shifted for firms (tangible assets vs intangible assets, where this has caused risks to change over time and business being exposed to evolving risks. A comparison was drawn between risks facing companies in the 1960’s to emerging risks in 2019. The use of big data in mitigating risk exposure was discussed. Clyde mentioned the lack of understanding of BI cover in the SME Markets along with the other emerging risks, i.e cyber, reputational social media.
Terashni spoke about the emerging of new risks, such as ‘Green Buildings” and the possible new risks that this trend may bring. New building practices brings on risks that we may not have anticipated, so we need to be aware of emerging trends. She went on to explain the difference between the risk engineer in comparison to a risk surveyor. Clyde added that Risk Engineers add value by informing underwriting protocol and providing quantitative and qualitative analysis. Key take away; move away from the traditional methods of doing insurance and using technology and data to better understand your customer and the markets you operate in.
Our final speaker was Ntheye Lungu from OMI. Ntheye delved into the history on the topic of risk awareness and how this concept has evolved over the centuries. He looked at the origins of risk measurement and introduced the audience to the concepts of mathematicians Blaise Pascal and Daniel Bernoulli. He explained that risk management always looks at probability and impact.
Ntheye also touched on the change in global risks that we face such as technological changes, global supply chain, disruptive global megatrends, no safe business models but also highlighted the fact that these changes bring new risks and opportunities for us. He touched on the King IV principals of combined assurance and key questions that we need to ask our organisations in terms of risk. He highlighted the need to establish and implement a common language across the universe of insurance providers to ensure consistency of risks, issues, management actions, etc.
There was clearly a common theme amongst the speakers in that we are all impacted by global evolving risks and as an industry we need to be prepared for the complex risk environment we are all facing. Our MC closed the session and thanked our speakers and sponsors for their contribution in making our insight session a success.
Article by Daphne Peters