How managing risk and hard insurance market has evolved meaning during the pandemic

Author: Peter Persuitti

Two Four Letter Words

There are two monosyllabic words that appear to be recurring in my daily vocabulary during this prolonged pandemic — risk and hard. Let's talk about them.

Managing risk throughout a pandemic

Risk is an interesting concept. Some see it as something to avoid, even though our Gallagher colleague and enterprise risk management (ERM) specialist Lisanne Sison reminds us in this issue that risk has a remarkable upside to it and we must always consider the ying with the yang. Our own governance specialist Jim Rice's use of the Japanese martial art aikido to talk about a new normal for nonprofits and its harmonizing effect is another great metaphor. What we do know is that the current challenges involve risk and as such call for fresh ways to build new roadmaps to success on the other side of the pandemic. This pandemic has engaged all of us in a personal confrontation with risk and some think that the silver lining may be that we all will become contributors in managing risk. Imagine our organizations (or our communities) where risk is a fabric of the culture — I think this could be the silver lining of this pandemic.

This COVID-19 pandemic surely tested our ability to manage organizational risk as we mobilized our business continuity plans and tried to adjust and pivot to circumstances that just weren't imagined or pondered in our plans. We are changed people, we are dramatically changed organizations, and no doubt life will never go back totally to our pre-pandemic lives and work. We witnessed technology exponentially catapult us into virtual social experiences and transactions that will displace some of our learned behaviors going forward. Will this too reduce risk to some degree?

It's fascinating to see how the pandemic caused a pause in social inflation, given that courts and plaintiffs could not operate optimally. Will there be a buildup of claims? Some insurance carriers actually used this pause to reach out proactively to accelerate resolutions with law firms and others.

Risk has become front and center of board discussions and this too will make for stronger organizations long term. Moving from a department that oversees risk to strategically fostering a risk-aware culture will require board time and talent. We have long advocated that risk and its assessment need to be a standing item of every board meeting and I think we have arrived there now. This will be equally important to thriving as to surviving.

Maneuvering in a hard insurance market

Hard is an interesting adjective that has become used with the insurance marketplace, albeit not for more than 20 years now. We are not talking durable as in a secure substance, but difficult as in escalating pricing and rates, reduced coverages and limits and overall increase in operating costs. With the pandemic we suddenly moved from an emerging, prolonged firming insurance market to a complete stop hard market — auto, excess casualty, property, employment practices, directors and officers, crime, sexual abuse and molestation. While I didn't include workers' compensation, we may see it on the list as we see the impact of COVID-19 on the workplace in the months ahead.

Some experts have thought that the pandemic could have slowed down this negative momentum and hard market, due to several factors — lack of activity and operational auto exposure, courts closed, etc. But unfortunately we started 2021 with what may be among the largest catastrophic events in history — the polar vortex event of February 2021 — estimated at $10 to $20 billion in losses. It appears that no matter what the capital markets do to infuse funds and increase capacity, we are going to have to find ways to go back to the basics and strive to make our nonprofit best in class and differentiate ourselves through demonstrated analytics. Data will rise to the forefront and along with technology could make insurance less of a dependent relationship with carriers and more of a secondary, catastrophic backstop.

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