Disruptive Technologies Present Opportunities for Risk Managers, Study Finds

PHILADELPHIA–Disruptive technologies are used more and more by businesses, but those organizations appear to be unprepared. What’s more, companies seem to lack understanding of the technologies and many are not conducting risk assessments, according to the 14th annual Excellence in Risk Management report, released at the RIMS conference here.

The study found an apparent lack of awareness among risk professionals of their company’s use of existing and emerging technologies, including the Internet of Things (IoT), telematics, sensors, smart buildings, and robotics and their associated risks. When presented with 13 common disruptive technologies, 24% of respondents said their organizations are not currently using or planning to use any of them. This is surprising, as other studies have found that more than 90% of companies are either using or evaluating IoT technology or wearable technologies and that companies in the United States invested $230 billion on IoT in 2016.

Another finding was that despite the impact disruptive technology can have on an organization’s business strategy, model, and risk profile, 60% of respondents said they do not conduct risk assessments around disruptive technologies.

“Today’s disruptive technologies will soon be — and in many cases already are — the norm for doing business,” said Brian Elowe, Marsh’s U.S. client executive leader and co-author of the report said in a statement. “Such lack of understanding and attention being paid to the risks is alarming. Organizations cannot fully realize the rewards of using today’s innovative technology if the risks are not fully understood and managed.” According to the study:

Organizations generally, and risk management professionals in particular, need to adopt a more proactive approach to educate themselves about disruptive technologies — what is already in use, what is on the horizon, and what are the risks and rewards. Forward-leaning executives are able to properly identify, assess, and diagnose disruptive technology risks and their impact on business models and strategies.

This lack of clarity presents opportunity for risk professionals. In fact, previous Excellence reports have indicated that C-suite executives and boards of directors want to know what risks loom ahead for their organizations and increasingly rely on risk professionals to provide that insight.

“As organizations adapt to innovative technologies, risk professionals have the opportunity to lead the way in developing risk management capabilities and bringing insights to bear on business strategy decisions,” said Carol Fox, vice president of strategic initiatives for RIMS and co-author of the report. “As a first step, risk professionals are advised to proactively educate themselves about disruptive technologies, including what is already in use at their organizations, what technologies may be on the horizon, and the respective risks and rewards of using such technology.”

One thing companies can do to manage risks associated with disruptive technologies is facilitate discussions through cross-functional committees—yet fewer companies, only 48%, said they have one, a drop from 52% last year and 62% five years ago.

Whether discussed in weekly, monthly, or quarterly organization-wide committee meetings, emerging risks — including disruptive technologies — need to be examined regularly to anticipate and manage the acceleration of business model changes. When risk is siloed, too often the tendency can be toward an insurance-focused approach to risk transfer rather than an enterprise approach that may lead to pursuing untapped opportunities.

The Excellence survey, Ready or Not, Disruption is Here, is based on more than 700 responses to an online survey and a series of focus groups with leading risk executives in January and February 2017.

Findings from the survey were released today at the RIMS 2017 Annual Conference & Exhibition. Copies of the survey are available on www.marsh.com<http://www.marsh.com> and www.rims.org<http://www.rims.org>.

And the 2017 RIMS Awards Go to…

PHILADELPHIA—At today’s RIMS 2017 Awards Luncheon, the society issued its top honors for achievement in the risk management and insurance industry.

Scott B. Clark, area senior vice president and enterprise risk management consultant at Arthur J. Gallagher & Co., received the society’s most prestigious honor, the Harry and Dorothy Goodell Award. Named after RIMS’ first president, the award recognizes outstanding service and achievement in furthering the goals of the society and the discipline of risk management.

Richard Hackenburg and Glen Frederick were this year’s inductees into the Risk Management Hall of Fame, presented in conjunction with AIG.

In his 45-year risk management career, including leadership roles at Willis and XL Insurance, Hackenberg’s received the 1993 Goodell Award and served as president of RIMS in 1985 and later as chairman of the Spencer Educational Foundation, where he remains a director emeritus.

Frederick, former director of risk management client services with the government of British Columbia, received the Goodell Award in 2011 and, the same year, the Donald M. Stuart award for outstanding contribution to the risk management profession in Canada. He served as chair of the RIMS Canada Council in 2006 and co-chair of the RIMS Canada Conference in 2003. Frederick’s 30-year career also included leading implementation of the enterprise risk management strategy for the Vancouver organizing committee (VANOC) and the International Olympic Committee (IOC) to manage risks associated with the 2010 Olympic Games—the first to use an ERM strategy, which is now required for all Olympic games.

“Industry heroes like Richard Hackenburg and Glen Frederick were selfless, giving back to the risk management community and paving the way for future practitioners,” said RIMS CEO Mary Roth. “It is an honor to join AIG in inducting these risk management stalwarts into the Risk Management Hall of Fame.”

The RIMS Rising Star Award, issued to risk management professionals who are under 35 or have less than seven years of experience in the industry, was given to William Lehman. An insurance specialist at Cook Group Incorporated, Lehman was recognized for demonstrating exceptional initiative, volunteerism, professional development, achievement, and leadership potential.

Debra Samuel, manager of insurance and risk management at Arconic Inc., was recognized for exceptional service to strengthen and support the strategic initiatives of RIMS with the RIMS Ambassadors Group award. This year’s Cristy Award for the highest marks on the three Associate of Risk Management exams went to Michael Ratto, risk procurement manager at Kraemer North America.

GM Halts Venezuela Operations Following Plant Seizure

General Motors has ended its operations in Venezuela after authorities in the strife-torn country seized the company’s plant there on Wednesday.

In a statement Thursday, General Motors said that assets, including vehicles, were also seized from the plant as it was taken over by Venezuelan officials while demonstrations surged throughout the country. The company said in a statement that the facility was taken without due process and that it intends to defend its interests.

General Motors has about 2,700 workers and 79 dealers employ 3,900 in Venezuela, according to the Detroit News, which added that “GM’s Venezuelan operations have been a drag on earnings for several years.” Last year the company lost $400 million before taxes in South America, which accounted for roughly 6% of global sales at 583,000 vehicles. GM also took a $720 million charge in the second quarter of 2015 for currency devaluation and asset valuation write-downs as Venezuela’s economy crumbled.

Losses such as the plant and possibly even including the currency hits may or may not be covered by political risk insurance. The challenge in securing such coverage is in accurately predicting when and where it might be needed—companies cannot wait until a threat emerges before securing cover, which is likened to attempting to buy home insurance after your house has caught fire. GM did not immediately respond to an inquiry asking whether the plant was insured for misappropriation.

In its statement, GM said workers at the seized plant would get separation benefits if the government allows such. The statement added that dealers in Venezuela will continue to service vehicles and provide parts.

In its “Credit and Political Risk Insurance Report & Market Update, January 2017,” insurance broker Arthur J. Gallagher ranked Venezuela as one of the world’s riskiest nations, describing the county’s risk potential as “very high,” ranking it just above Libya.

Indeed, this is not the first instance of Venezuela’s government appropriating private assets amid rising nationalist sentiments and domestic unrest. “It fits a broader pattern, in the sense that the government’s response to surges in opposition activity tends to be the deepening of the revolution,” Phil Gunson, a Venezuela-based analyst for the International Crisis Group, told The Washington Post.

Opposition forces on Thursday called for further mass protests against the government. Venezuela has been in crises as forces opposing the government of President Nicolas Maduro accuse the hand-picked successor of populist leader Hugo Chavez of running a dictatorship. Runaway inflation and shortages of food, fuel and goods have stoked nationwide protests that killed three on Wednesday, including a 17-year-old male and a National Guard sergeant.

The fuel shortages are especially ironic given that Venezuela holds the world’s largest proven oil reserves with 298.4 billion barrels, topping Saudi Arabia’s 268.3 billion barrels of reserves, according to 2015 figures from the U.S. Energy Information Agency.

It’s a Great Time to Be a Risk Manager

2017 has so far been a wild ride of change. Companies are navigating through a new U.S. administration, Brexit and cyber risks that are more daunting each day. We are bombarded with uncertainty and unchartered waters. Nevertheless, it’s a great time to be a risk manager.

This kind of disruption is the reason many of us got into the risk and insurance industry.  Addressing disruption is what we do best. According to a recent CNN report, in fact, Risk Management Director is the number-two Best Job in America for 2017. Recognizing the meaningful contributions and rewarding work of a risk manager, the report highlighted the role in “identifying, preventing, and planning for all the risks a company might face, from cybersecurity breaches to a stock market collapse.”

In the midst of a riskier environment, the insurance industry that serves risk managers faces highly competitive market conditions. The result is more choices and better services for the risk management community. Now is the time for the risk manager to take the lead.

As thousands of risk professionals soon head to the RIMS Annual Conference in Philadelphia, it’s a good time to consider the opportunities in this growing profession.

Why the time is right for risk managers:

  1. 2017 brings a new risk profile. Every company, regardless of industry or size, needs to evaluate the new risks from the shift to nationalist policies in the U.S. and abroad. Our new administration’s efforts to increase America’s manufacturing raises a host of new insurance needs—more U.S. production means more U.S. liability. We are also seeing a shift in global supply chain and an increase in the political risks of operating outside our borders. These changes require board-level and C-suite attention. We expect to see risk managers play a more significant role with management in building risk mitigation into their company’s strategic direction.
  2. Rise in specialists. This is your time to be selective about specialists that understand your business and the specific challenges you face. Insurers are differentiating through specialization. Work with an underwriter that knows the risks, regulations, complexities and nuances of your industry. Many industries, such as construction and health care, will experience rapid change this year. Find partners that have been in the same trenches and can help you navigate changes.
  3. Tailored products and solutions. The highly competitive insurance market is also driving product innovation for clients with more tailored solutions. Take the time to learn about less-understood products, such as accounts receivable insurance, which protects companies from non-payment risks and gives them the ability to borrow, receive loans, and as a result, improve their credit quality. In Europe, 70% of companies purchase this coverage, compared to only 8% of U.S. companies. Understand the risks across your supply chain and work with your broker to customize insurance programs and bring innovative solutions.
  4. At the center of technology and innovation. The insurance industry is on the front lines of the cutting-edge technologies: internet of things (IoT), robots and drones. These advances will only grow and thrive with the right risk and insurance programs. For example, the technology surrounding drones or unmanned aerial systems is rapidly evolving. The ability to collect and analyze aerial data has improved efficiencies, enhanced safety and lowered costs within the construction, agriculture, telecommunications, oil & gas and real estate industries. As usage  grows, risk managers will be central to the successful operation of drones by understanding and managing the risks and compliance needs.
  5. Ability to leverage the best in data analytics. Risk managers have the data, tools and skills to anticipate the risks from this tumultuous environment. The insurance industry views these challenges with a different lens, drawing on past catastrophes and predictive analytics to plan for the challenges ahead. Risk professionals who know how to leverage this information can bring a sense of preparedness and control at a time of heightened uncertainty. There is also a role for risk managers to advise senior management on the use of data. But because models are continually amended and updated after losses occur, it is important to avoid an over-dependence on data and false sense of security.
  6. Opportunity to participate in growing your business. Risk managers do not just protect a business, they grow a business. Companies are reevaluating strategies based on new policies. Will they build manufacturing plants? Will they buy a strategic target? Risk professionals have an important role in mergers and acquisitions deals as insurance can be used to help quantify contingent liabilities and allow for accurate pricing models. The most common is representation and warranties insurance, which can help strengthen and facilitate a transaction.
  7. Better risk management services. Insurers realize it is not enough to write a check for a claim. Take advantage of risk mitigation services that are built into your insurance policies. They include education, training, tabletop exercises and risk assessments.
  8. A thriving profession. With more and more universities offering undergraduate risk management majors, we will see a dedicated, high-caliber talent pool focused on careers in risk and insurance. The Spencer Foundation, for example, has completed an eight-month competition between students of 29 universities from around the country, analyzing, developing and presenting the most comprehensive risk management solutions for a case study. The top eight teams will be in Philadelphia to present at RIMS.

The risk and insurance industry is made up of some of the most agile and level-headed professionals. Risk managers have always moved with the changing environment and crisis situations, developing programs to address their entity’s risk profile. Hopefully, we will see more companies include risk management in their strategic planning and leverage the experience and skills of their risk managers.