Q. The 2022 Airmic Conference theme is Moving Forward Together. What does that mean for you?
A. The last two to three years have been extraordinary in terms of what has happened in the world. We’ve had extreme weather events that seem to be getting more extreme and more frequent. We also had the global pandemic and more recently the conflict in Europe that people just didn’t expect to happen in their lifetimes.
This is an exceptional setting for a conference focused on the risk industry. The conflict in Europe also poses major challenges to the economic and geopolitical environment, and this poses major challenges to society, our customers and the industry. They’ve put it all together and the future looks very uncertain.
So now is a really good time for the industry to come together and consider how we can help our customers manage the impact of what has happened and what is to come? For me, the topic of “moving forward together” is captured.
Whether it’s the consequences of climate change, war in Europe or a pandemic – none of these challenges can be mastered by any of us alone. So we need to use our collective brains and pull together to manage the risks associated with these crises while moving our businesses forward?
This is why these conferences are so important, as they offer rare opportunities to share ideas and concerns and challenge one another on what else we can do. I am very happy about it and there is a lot to talk about. There is nothing better than an in-person conference to create that focus of dialogue.
Q. What are some of the risk management lessons from the global shocks of the past two to three years?
What we are learning is that we need to be more agile and proactive when thinking about risk. When you think of COVID and Ukraine, alongside the growing challenge we have seen from climate change in recent years, you may have experienced two Black Swan events in very quick succession.
The risk environment has become significantly more dynamic. It feels like it’s changing faster than it has in the past and is more unstable in its features. So it’s about recognizing that we need to question ourselves about how we view risk.
If you take a pandemic for example, I would imagine that for most of our clients the pandemic was somewhere on their risk register. It was also on government risk registers, but no one thought it would be as global based on our past experience with pandemics like SARS.
We need to become more uncomfortable challenging ourselves about the norms of how we think about risk, and that’s happening through a greater level of dialogue. Risk professionals need to be aware that emerging risks can become real risks very quickly and without much notice.
Being prepared for and anticipating emerging risks will be crucial because while most companies have had a pandemic on their risk registers, how many would say they are truly prepared to deal with something of this magnitude?
Some companies have been very adaptable and very resilient in dealing with it. But others were left a bit flat from the start.
Q. How do you maintain the right level of preparedness needed when resiliency fatigue sets in?
Fatigue cannot be underestimated, and you may be overly focused on dealing with today’s issues and not keeping an eye on the horizon. There is no substitute for getting out and sharing experiences and perspectives with others.
Industry has the task of continuing to be the early warning system. If we, as insurance risk professionals, don’t become more forward-thinking ourselves, how can we serve our clients the way they need to be served?
Research, continuous learning, helping customers to identify the risks that could quickly come their way is part of our role as a risk partner.
Q. It has been a challenging commercial insurance market over the last few years. How should buyers approach the next contract renewals?
There is no substitute for building our relationship with our customers and building that understanding. Difficult risks can be underwritten as long as there is a full understanding of how these risks are being addressed by the insurance industry.
Insurers strive to provide solutions to their customers – maybe not exactly in the way a customer wants – but hopefully a solution will be achieved through the right level of understanding, commitment and most importantly the trust that is built between insurers and customers through the opportunity to interact face to face.
Ultimately, the insurance industry is an industry based on good faith and trust. The ability to come together to further build relationships, forge new relationships, only increases understanding and can only help to facilitate successful renewals and successful risk placements.
Q. How does the insurance industry need to innovate to better serve its customers?
A. People jump into innovation without really understanding what question they’re trying to answer, because innovation isn’t just about product development. Innovation is about risk prevention and mitigation as well as risk product delivery, because what we all want to achieve – what our customers want to achieve, what society wants and what we as insurers want – is better resilience, less Claims and less bad things happen.
This is why research is really important because it will drive innovation in the way in which customers and insurers can work together to take the right resilience and mitigation steps, and also offer products as part of an overall framework.
Ultimately, product innovation is becoming increasingly difficult and complex. Because the insurance market is traditionally very good at managing tangible risks. Things you can see, evaluate and monitor, and of course companies and economies are migrating significantly towards intangibles as drivers of shareholder value. It therefore questions the relevance of the insurance industry.
Q. How does the industry stay relevant?
A. The London market plays a role here with its reputation for being at the frontier of risk development, driving innovation within the industry and being an innovator in the risk arena. One area of innovation that we are particularly focused on at the moment is climate, which is so important because it shows up in all our conversations with customers.
We believe that the insurance industry has a very important role to play in driving higher levels of resilience and supporting clients in the transition to net zero. Many global commitments have been made at the government level, but also by individual companies and insurers around a commitment to moving to Net Zero by 2050.
It is a daunting task that will require huge public and private investment to make this transition happen at this pace, including harnessing and leveraging new technologies.
That in and of itself will create a risk. For an insurer, developing new technology to support climate change without historical claims data poses pricing and underwriting challenges risk expertise between sponsors, brokers and other professionals.
This ecosystem really has an opportunity to innovate in this area of climate change to create products and services that help drive this transition.
So the insurance industry is a massive facilitator of transition, but it needs to find a way to get comfortable with insuring this new technology that’s going back to the importance of research.
Because if you don’t truly understand the question you’re trying to answer and the risks involved, you won’t be able to take the necessary steps to innovate.
Sean McGovern is Chief Executive of AXA XL, UK and Lloyd’s