Airmic CEO John Ludlow calls for the industry to look to the wider challenges for the year ahead.
At the heart of the risk profession lies the art of being prepared for the future, not predicting the future. This requires understanding the wider environment in which your business operates. It’s about looking beyond your own ecosystem to a broader and harder-to-define range of factors from local societal trends to global geopolitics.
In light of this, there are three observations I wish to make as we look ahead to 2020.
Changing societal norms
The first is that climate change should be recognised as an immediate business risk for organisations in all sectors. The impact of November’s Yorkshire floods on communities and businesses is just one local example of a global problem, but it is a wake-up call for the need to be better prepared for the effects of our changing climate.
Large businesses should become more alert to the indirect climate risks. The Yorkshire flooding, for example, may have impacted smaller business the most, but many big businesses are dependent on small specialist suppliers, and are vulnerable via their supply chain.
It is not just the physical impacts of climate change that matter, but societal changes. The climate crisis is having a profound impact on attitudes and norms. Although not new concerns, consumer attitudes to meat consumption, single-use plastics and air travel have evolved considerably even in the past year. Businesses should watch consumer trends closely as they continue to evolve through 2020 and beyond.
The harsh market
Turning to insurance, renewals next year will be both interesting and challenging. Hard markets of the past have typically been price oriented. However, the current market is having a far broader impact, not only affecting price but also deductibles, capacity, the late timing of presentation of renewal terms, and in some cases the complete withdrawal from certain classes of cover or sectors. That is why Airmic refers to the “harsh market” to better describe today’s unique conditions.
This is likely to be a strong theme throughout 2020, and will demand a more robust approach to risk management – for insurers, brokers and businesses. Insurers will need to work more closely with risk professionals to underwrite more effectively and to reward sophisticated risk management. In turn, risk professionals will need a thorough understanding of their risk appetite and sharp negotiating skills.
The year for collaboration
My third point is less an observation, and more of a challenge: we hope 2020 will be the year of collaboration.
Today’s risks are increasingly interconnected, unpredictable and fast moving. At our 2019 conference, the industry came together to debate how to respond to these challenges – and it was absolutely clear that greater collaboration, closer ties and the sharing of ideas must be at the heart of our response.
If there’s one change we’d like to see in 2020, it would be a shift away from the tripartite relationship between insurer, broker and buyer, towards a “roundtable relationship” which draws in a broader range of perspectives. The insurer, broker and buyer will remain at the heart of the insurance buying process, but the relationship should extend to others such as technology partners, risk consultants, lawyers or the CFO to name a few.
In the new, uncertain world and with the insurance market turning, we all need to understand risk better. This will only be possible by engaging a network of key risk allies across organisations. Risk managers will gain a more robust and more strategic view of their organisation. Meanwhile, insurers will benefit from a better understanding of their clients’ needs and more finely tuned underwriting decisions.