Dr Matthew Connell
Policy and Public Affairs Director, Chartered Insurance Institute
Expert opinion will always be useful, but experts can’t tell us how to prioritise the advice they give us against the advice other experts are giving.
Whenever faced with a complex problem, one tends to defer to the experts. However, in the face of a problem like COVID-19, where the issues are so broad, it can be difficult to discern which experts to engage.
Of course, expert opinion will always be useful, but experts can’t tell us how to prioritise the advice they give us against the advice other experts are giving: health professionals, economists, psychologists, and many others. So, we must go from ‘following the science’ to ‘prioritising the science’.
This is where the discipline of risk management comes in, helping us to develop plans for mitigating risks that we cannot prevent and setting up strong systems of governance that allow us to make and revise decisions based on imperfect and incomplete information.
Businesses that had a strong sense of their purpose, and how it contributed to society more widely, were better placed to argue for government aid .
Managing the risks
For businesses, this means weighing the safety of employees and customers with the need to deliver goods and services. Right across the economy, we have seen firms developing creative new ways to carry on delivering value. For knowledge-based sectors that had invested in technology like cloud computing, the foundations were already in place for a shift to virtual working.
But, for many businesses, such as travel companies, these alternatives were not possible. However, even here, businesses that had a strong sense of their purpose, and how it contributed to society more widely, were better placed to argue for government aid in order to preserve their contribution for the future than businesses that had simply pursued short-term, purely commercial goals.
So, we can see that risk management is not just about commercial planning, but about identifying and delivering to a purpose that will win vital allies in even the most difficult conditions.
And it is important that we not only think through this process for pandemics, but for other fundamental risks. The next crisis may make systems that survived the pandemic vulnerable in future. The risk management challenge for the next crisis starts now, not when crisis a happens.
Facing the challenges
This presents new challenges for insurers. This crisis has made it clear that there are some risks that cannot be insured, if only because the size of the impact is so great, that consumers and businesses would never be prepared to pay the premiums needed to cover them.
Negotiating reinsurance arrangements with governments will help to expand the range of risks that can be covered and will help to provide clarity about what insurance policies cover and what they don’t cover – but there will always be uninsurable risks.
The challenge for both insurance companies and brokers is to make certain that their guidance to business about how to identify, measure and mitigate those uninsurable risks is as much a part of the risk solution their offer to clients as the insurance policies that cover insurable risks. Like most other sectors of the economy, the insurance profession has to reinvent itself to become true to its purpose: protecting businesses and individuals from potentially catastrophic events.