Interview: Colin Campbell, Head of Risk & Compliance, Arcadia

Emerging Risks

AS THE RISK LANDSCAPE EVOLVES HOW DO INSURERS NEED TO ADAPT TO MEET THE NEEDS OF TODAY’S MAJOR CORPORATES?

What are some of the emerging risks of most concern to your board and how are you addressing these?

There are a multitude of potential risks facing today’s risk manager. The Brexit issue, for example, is of immediate concern and depending on the outcome could have implications for
businesses for many years to come.

Regulatory intervention, which is of course linked to the EU debate, is also a key risk. There are a number of legislative developments in the pipeline in the UK, such as the Modern Slavery Act – a worldwide initiative but a law in the UK; while the new EU Data Protection Regulations will have significant implications for organisations.

We are also increasingly operating in a marketplace where it is difficult to accurately categorise the business sectors within it. For example, if you look at manufacturing or retail, the traditional ways of operating no longer apply. Many processes are now outsourced, with components being brought in from across the world through highly complex, fragile and fast-moving supply chains. The role of the company is often more about managing that chain rather than producing the goods themselves.

Information security and the evolving threat of cyber-related incidents are also of course part of the risk mix. However, it is important to remember that at the root of these hi-tech challenges is the human element – whether that’s human error or a malicious act from an internal or external party.

I would also add that in addition to new threats, we must acknowledge that the more traditional risks we face are themselves evolving and require risk managers to re-evaluate their approach.

Is the insurance industry innovating quickly enough to offer products that are geared towards new and emerging risks? What needs to happen in your mind?

This has been a question posed at every AIRMIC conference in recent memory. In my view, we have seen more innovation on the part of the insurance industry in the last 18-24 months than we have in the last five to ten years. However, we have to acknowledge the environment insurers are operating in. As an industry, they are tackling the same issues as any other business sector – whether that’s Brexit, regulation or the cyber threat – as well as their own unique challenges, including increased competition, over capacity, declining rates etc. This is not an ideal climate in which to invest in research and development into new products for emerging risks.

Introducing products into new sectors is not an easy task. You have to define and understand the risk, establish the exposure levels and design a relevant solution. You also have to have a market which understands the risk and the need for cover. In my opinion, what insurance and risk managers often want is not a new product, but rather that the particular risk be integrated into existing
cover, such as the property & business interruption policy.

If we look at cyber – yes, there is a much better understanding of the potential exposures, and a much greater willingness to purchase this product, particularly in the US and increasingly in the UK for example. However, the insurance market can’t simply open its arms as wide as possible to this risk. They have to manage it carefully and be conscious of the potential for risk accumulation.

June 2016