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"Insuring The Uninsurable" - How Risk professionals can offer value to their businesses

By Julian Kirkman-Page, Connected Exposure Consulting, Russell Group

The nature of business risk is going through a dramatic revolution and at the heart of it, the role of the risk professional is changing profoundly. With the world becoming more interconnected, both strategic decision makers and risk professionals must embrace exposure in its broadest sense – by taking into account an enterprise’s entire business network, from key suppliers through to key customers, when assessing an organisation’s business risk.

Every corporate risk register or what we call “corporate risk stack” includes not only the traditional risks such as health and safety but more intangible risks such as reputation and cyber. It is these risks that trouble risk professionals as the risks cannot be controlled or mitigated effectively, partly because they can be impacted by external events.

The current Coronavirus outbreak is the most obvious example of an event that can impact and disrupt an enterprise’s business network. The reaction and disruption from the outbreak is causing supply chain delays affecting both businesses and households; from a shortage of components for manufacturing through to a shortage of hand sanitisers. It is no surprise that for many risk professionals and their insurers, both business interruption and contingent business interruption are on the forefront of their minds.

Many corporates maintain operational or enterprise risk management departments with the goal to focus on internal controls, governance and meeting regulatory requirements. Alongside this department, some corporates may maintain a separate insurance department to focus on statutory requirements such as Employment Liability and Third-Party Motor in order to protect the physical assets of the company. However, more enlightened risk departments are realising the business potential of merging these risk and insurance functions to assess how previously uninsured or even uninsurable risks - what we call “insuring the uninsurable” - can be transferred off the balance sheet and thus freeing up balance sheet resources to target new business opportunities.

The key element that underpins any such opportunity is access to data. No (re)insurer or financial company is going to underwrite any amount of risk that cannot be quantified. Yet, in this brave new world of risk transfer, the (re)insurance community need to think out of the box. By this, we mean that rather than offering to corporates distinct product silos – say a cyber policy – they need to offer a holistic solution that meets the business needs of the corporate.

If (re)insurers continue down their current path of “shoe-horning” risk into a collection of policies that do not match a company’s business then risk professionals may be forced to turn to other alternative methods of risk exchange such as captives.

It is by “insuring the uninsurable”, that risk professionals can not only quantify previously uninsurable risks such as reputation but also help to free up the balance sheets for their organisations. A move that would allow the organisation to maximise their opportunities and expand their business.

On Wednesday 22nd April, Russell Group will be hosting a breakfast briefing entitled “Insuring The Uninsurable”. The event which is free to attend will be a panel discussion, with speakers including David Broughton, Head of Insurable Risk at Centrica and Neil Timberlake, Group Insurance Director at Landsec. Register your place here.