Risk management is ‘core’ to insurer propositions that improve client relationships

Accepting, pooling and managing risks is a huge part of what the insurance market does, however industry voices have recently heralded an increased focus from both insurers and brokers on risk mitigation and management.

Max Richter, a managing director in professional services firm Accenture’s UK insurance practice, believes that this risk management role can be leveraged as part of the “core offering” from insurers.

He explained: “The insurance industry has long been affected by slow growth rates and a lack of deep client relationships. In a bid to overcome these challenges, insurers have worked to foster a more partnership-style relationship with clients.

“Given their vast expertise in risk management and the fact that new risks emerge more rapidly than ever before, insurers are beginning to leverage this expertise as a core offering to customers. The result? A service-based risk consultancy model with an aim to reduce the frequency and severity of customer losses. Not only does this model deliver higher value to clients, it brings insurers closer to their customers and in turn creates new and higher revenue streams for the industry.

“As more industry players adopt this style of risk management, we will see greater competition and in turn more competitive offerings for customers to benefit from.”

But how are insurers incorporating risk management into their operational models? For Justin Elks, managing director and UK enterprise risk management (ERM) and insurance lead at consultancy Crowe, forward-thinking insurers are using risk management early in their product design process, rather than simply tacking it on to the end.

He said: “Forward-looking risk functions increasingly focus on the critical task of integrating risk consideration into the decision-making processes and having an up-front involvement.

“For example, [in] product design the old-fashioned approach was to do a risk assessment towards the end of the development process. This puts risk management in a catch-22 situation: if they identify significant flaws, they are highlighting wasted effort from the business, but if they identify no issues, they are accused of not adding value.

“Forward-looking organisations have evolved to a much more integrated process where risk is a more up-front element of decision-making, including product design.”

Accenture’s Richter agreed, citing work his firm has done with insurer AXA XL to mitigate cyber risks. This includes offering clients “pre- and post-breach security services such as incident management, IT forensics, threat intelligence reports and other risk assessments”.

Market positioning

However, where is the responsibility for risk management best placed – with insurers or brokers? And with both parties seeking more of a risk mitigation focus, will there be competition to provide risk advice to clients?

Richter believes there will be competition, to an extent.

He continued: “Risk management is an area that brokers are attempting to break into by developing broker consultancies, where they can leverage their market presence and power in a bid to promote their own services in this area.

“Both [insurers and brokers] are well placed to provide such a service; the point is that it’s down to each participant to find their own place within the market.

“The key is to establish their differentiators through risk analysis and exercises with customers to understand various appetites, in turn establishing their unique service offering.”

Martin Mankabady, corporate partner at Dentons, added that insurers and brokers should collaborate to achieve cohesive risk management success.

“There could be some competition, but they can also work together. I don’t think it’s a battleground where either the broker’s going to win or the carrier’s going to win. There’s a role for both of them,” he said.

Importantly, just because insurers and brokers are dealing more in risk management, traditional risk managers needn’t fear for their jobs.

Richter said: “Traditional risk managers have the audience and the expertise in the context of the bigger picture, so it’s more a case of insurers and brokers establishing their place within the wider market, rather than taking it over as a whole and replacing traditional risk managers.”

Elks agreed: “While insurers and brokers have access to a plethora or information about risks in a particular industry, they can’t have as good a knowledge of a specific business – its strategy, vision and values, finances – as those within the organisation itself. There is still a need for a traditional risk manager role.

“To manage risk well, you need a good combination of the technical, detailed knowledge and an insight into macro trends, which a more collaborative approach can bring.”

Coronavirus spotlight

Biba’s executive director Graeme Trudgill described a pandemic as a “fundamental risk” and, undoubtedly, the ongoing Covid-19 pandemic has put risk management firmly in the spotlight.

Mankabady said that risk managers will have a “higher profile” as a result of the coronavirus crisis and that risk mitigation may be an industry-wide focus following the pandemic.

He said: “Insurance is about swallowing losses, but it’s also about risk mitigation and I wonder whether you might see more focus on that; [insurers and brokers] working with clients to say ‘we’ll help you assess the risk in the your business and we will help you put plans in place to help mitigate it, remove some of those risks’. I wonder whether you will see risk management growing and coming more to the fore.”

Elks agreed: “Covid-19 has undoubtedly put the effectiveness of risk management back in the spotlight and is leading companies to learn lessons and think about how they adapt their risk management going forward.”

Mankabady added that if firms do not embrace technological risk management tools now, then it will be a “missed opportunity”.

He explained: “To use technology, perhaps Internet of Things, to get more data on potential risks in clients’ businesses or in their daily lives, their private lives. Use that data to mitigate risks and to prevent claims being made, providing a valuable service.

“The question is will the market embrace all that technology now or will they get through this crisis and then just revert to the way they were? That might be a missed opportunity and I think now is the time where we’re going through so much change anyhow, to really embrace that and actually look at the opportunities coming out of this crisis.”