It is interesting that the discipline of enterprise risk management, considered a relatively new discipline in the corporate space, is on the rise. With its genesis in the 1980s, there is no question of the growing relevance of the concept: Indeed, in a world where risks of every kind are lurking around every corner, it makes perfect sense that large, complex and geographically dispersed organisations should seek to identify, categorise, quantify and limit their exposure to potentially damaging events.
What is abundantly clear is that despite modern advances in technology which include everything from detectors to identify geological events through to intelligent systems which can foresee business and market outcomes, the world remains an unpredictable place. While we were all focused on the possibility of another Pacific or Caribbean tsunami given the seismic activity there, a little known volcano in Iceland shut down Europe. From heady boom days, the economy suddenly turned to recession, rendering many business models irrelevant or obsolete in what felt like an overnight change.
In South Africa, union activity, political uncertainty and related concepts of currency instability and Enterprise risk management may be a new field for corporations, but it has always held centre stage for those of us in the insurance industry. What has perhaps changed in recent years, however, is the increased attention which business now affords to the discipline: many risk managers saw what was coming with the global financial crisis, but their warnings weren’t heeded. With the benefit of hindsight, many companies have paid dearly as they have learned a very expensive lesson. When there is risk on the horizon and the warning is sounded, it should be heeded.
The enterprise risk manager faces a tough task, required as he is to play out future scenarios and monitor and observe a huge range of variables. That’s something with which we in the insurance industry have always occupied ourselves. Not only must we understand, appreciate and assess risks, but we must also price appropriately for them. In this volatile world, the risk manager – and businesses of every kind – depend on insurance underwriters to support sustainability. Simultaneously, for insurers to stay in business, we have to be sustainable ourselves. The answer, as it always has, lies in accurately pricing for risk.
Therefore, risk management continues to play a key role in the short-term market, often determining whether insurers are prepared to take on particular clients as well as the premiums that will be charged. Reinsurance is a key element in the local insurance market, providing insurers with additional capacity as well as the ability to spread risk.
That said, it is arguably necessary for ever-closer relationships of trust to be forged between risk managers and insurers, particularly in complex environments such as multinational business, engineering, construction, financial services and more. When insurers are seen as partners in stability and sustainability, both parties benefit from a mutual exchange of value.