EXECUTIVE SUMMARY

A Changing Risk Landscape

The COVID-19 pandemic exposed a number of vulnerabilities in organizations’ business models and risk approaches—in our new global survey, 82% of respondents said that prior to COVID-19, a pandemic or other major health crisis was not a top 10 risk on their organization’s risk register. When it occurred, launching a global health and economic crisis, organizations’ risk infrastructures were tested. Existing and emerging long-tail risks will continue to challenge organizations across all industries and geographies, and the pandemic, its economic devastation and a hardening insurance market are pushing organizations to build a new enterprise risk management (ERM) strategy. To move forward, organizations have to reprioritize risk and resilience, broaden their perspective and elevate risk management as a critical business priority. In this survey of organizations spanning multiple industries and geographies, we explore how companies are moving through three key time frames—react and respond, recover and reshape—and how they should prepare for the future.

REACT AND RESPOND

Organizations’ Pandemic Response

Multiple waves of the pandemic and inconsistent vaccine rollouts have made it challenging for organizations to move beyond the first response phase. Indeed, 20% of organizations indicated they were still in the “react and respond” phase around six months after the COVID-19 outbreak was established as a pandemic.¹ Even organizations that have moved into the recovery and reshape stages are finding that changing infection rates, restrictions and regulations coupled with other external forces such as geopolitical tensions or climate risks push them back into the react and respond stage. There are geographic nuances that reflect the global nature of the crisis. For instance, North America had the lowest percentage of respondents remaining in the react phase, while other regions were broadly equal with around 25% of respondents reporting to be in this initial phase. Despite these differences, one core theme emerged: More than half of companies report that they expect COVID-19 will continue to impact their business a year from now.

Organizations need to formulate a strategy for reacting and responding to compounding risks. During the pandemic, few companies filed a claim on their insurance program, but this could have a significant impact in how they react and respond to future crises and finance risk, especially if insurance companies innovate their offerings. There are other critical areas, in addition to risk financing, that organizations need to prioritize to manage risk and build resilience, including workforce resilience, digital technology infrastructure and supply chain management.

RECOVER

Organizational Resilience

Recovery from a major global crisis is complex, but putting risk management at the forefront can help. In addition to stabilizing the business, recovery also involves re-adjusting to risk—both small-scale challenges and major shocks. The majority of companies say they are only somewhat prepared for the next major shock, indicating that recovery needs to be multifaceted.

Organizations are turning to a number of recovery priorities now and for the future. The limited number of COVID-19 insurance claims submitted by respondents suggests insurance solutions were not viewed as a means to finance risk exposure, but most organizations recognize the need for new risk financing or coverage solutions. Many agree they have to do more to integrate corporate risk and insurance activities to ensure insurance solutions are effective in responding to the convergence of existing and emerging risks and also manage their total cost of risk, which will be impacted by the hardening market. Many are reviewing their business continuity management, likely applying lessons learned from the pandemic.

To achieve these risk objectives, the role of risk, and risk managers, should change; a more cohesive and integrated approach is necessary to recover not only from the pandemic but from future shocks

RESHAPE

Business Priorities and Future Planning

The pandemic has pushed planning for future major shocks and black swan events to the top of many organizations’ agendas. In the survey, 35% of respondents identified the need to accelerate plans to identify these future shocks. Only 16% of organizations felt confident that they are very prepared for future events. Preparation will require reprioritizing risk and resilience and reshaping ERM strategy. From a broader enterprise risk perspective, 76% of organizations were aiming to review their ERM program as part of the normal business cycle and a further 21% were actively aiming to investigate whether improvements can be made. Organizations are also determining how to reshape certain business areas to position themselves for future growth, and these differ across regions. For instance, new product development is the main priority in EMEA, APAC and LATAM, reflecting a need to innovate to not only survive but thrive in these markets, while workforce planning tops the list in North America. All regions report that economic disruption and health crises are threats to watch, which will likely inform organizations’ business strategy and investments. A changing business strategy will come with changing risks. This, alongside the increased focus on enterprise risk management, will require a new role for risk managers.

CONCLUSION

The Path to Reprioritizing Risk and Resilience

The pandemic has pushed planning for future major shocks and black swan events to the top of many organizations’ agendas. In the survey, 35% of respondents identified the need to accelerate plans to identify these future shocks. Only 16% of organizations felt confident that they are very prepared for future events. Preparation will require reprioritizing risk and resilience and reshaping ERM strategy. From a broader enterprise risk perspective, 76% of organizations were aiming to review their ERM program as part of the normal business cycle and a further 21% were actively aiming to investigate whether improvements can be made. Organizations are also determining how to reshape certain business areas to position themselves for future growth, and these differ across regions. For instance, new product development is the main priority in EMEA, APAC and LATAM, reflecting a need to innovate to not only survive but thrive in these markets, while workforce planning tops the list in North America. All regions report that economic disruption and health crises are threats to watch, which will likely inform organizations’ business strategy and investments. A changing business strategy will come with changing risks. This, alongside the increased focus on enterprise risk management, will require a new role for risk managers.

respondents viewed protecting their people as the top priority across the globe. Workforce stability and engagement is a key driver for businesses to be sustainable and adaptable across all countries and industries in a volatile and changing risk landscape. To achieve workforce resilience, organizations should focus on employee well-being, talent retention, operational improvements and new, innovative working models and technology.

Rethinking access to capital: Few respondents said they submitted a claim triggered by COVID-19 under their insurance program or captive, which suggests that insurance was not viewed as a solution or was unable to meet organizations’ risk financing needs. This is likely because the risks are either uninsurable, or the scale of the event exceeded conventional program limits or capacity. While government support has helped some organizations fill a gap, it is clear that companies need new and innovative solutions to face not only pandemic-related risk exposures but also a changing risk environment that is becoming more complex and volatile. Organizations should seek solutions from the insurance industry to help manage their total cost risk and consider alternative financing structures, such as captives and specific coverage, for emerging risks.