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.

2017 Atlantic Hurricane Season Outlook

With the official opening of 2017 Atlantic hurricane season fast approaching, researchers appear cautiously optimistic the relatively quiet streak will continue.

Today, Colorado State University’s Tropical Meteorology Project released the extended range forecast of 2017 Atlantic seasonal hurricane activity, predicting slightly below-average activity in the Atlantic basin, with a forecast of 11 named storms, four hurricanes, and two major hurricanes.

Philip Klotzbach, CSU

The probability of at least one major (Category 3+) hurricane making landfall on the entire U.S. coastline is 42%, compared to an average of 52% over the past century. The probability of such a storm hitting the East Coast, including peninsula Florida is 24%, compared to an average of 31%. Thus, CSU noted, the estimated probability of a major hurricane making landfall in the U.S. this season is approximately 80% of the long-period average.

Hurricane activity may not be as critical a determinant for how insurers and property-owners will fare, however. Aon Benfield’s Global Catastrophe Recap reports have consistently noted the rising toll of economic and insured losses due to severe weather events including severe thunderstorms, hailstorms, and flash flooding. In Texas alone, for example, Aon Benfield reports the state incurred record thunderstorm-related losses for the year, with insurers citing costs exceeding $8.0 billion.

Other recent studies support this trend. In the Willis Re and Columbia University report Managing Severe Thunderstorm Risk, researchers found the risk to U.S. property from thunderstorms is just as high as from hurricanes. Their review of Verisk Analytics loss statistics for 2003 to 2015 found the average annual loss from severe convective storms including tornadoes and hailstorms was $11.23 billion, compared to $11.28 billion from hurricanes. Considering the past decade alone, severe convective storms posed the largest annual aggregated risk peril to the insurance industry.

willis re severe convective storms

First Quarter 2017 Sees Upward Rate Movement

U.S. insurance buyers may see higher rates this year, as the composite rate index for commercial accounts increased plus 1% for the first time in 20 months, MarketScout reported today.

Rates for business interruption, inland marine, workers compensation, crime, and surety coverages held steady in the first quarter, while rates for all other coverages either moderated or increased.

“The plus 1% composite rate index was driven by larger rate increases in commercial auto, transportation, professional and D&O rates,” Richard Kerr, CEO of MarketScout said in a statement. “We also recorded small rate increases in the majority of coverage and industry classifications. So, 2017 begins with insurers moving away from the rate cuts of 2016.”

Small accounts (up to $25,000) were assessed a 1% rate increase in the first quarter of 2017. Medium accounts ($25,001 to $250,000) were flat, while both large ($250,001 to $1 million) and jumbo accounts (more than $1 million) saw rate decreases of minus 1% and minus 2% respectively, MarketScout said.

By industry class, every industry experienced a move toward higher rates in the first quarter, with transportation seeing the largest rate increase at plus 5%.

Disaster Losses Climb as Protection Gap Widens: Swiss Re Sigma Study

Global Economic losses from disaster events almost doubled in 2016 to $175 billion from $94 billion in 2015, according to the most recent Sigma Study from the Swiss Re Institute.

Insured losses also rose steeply to $54 billion in 2016 from $38 billion in 2015, the study found. This led to a “protection gap,” as the company calls it, of some $121 billion, the difference between economic and insured losses, a figure highly indicative of the opportunity for greater insurance penetration, according to Swiss Re. “The shortfall in insurance relative to total economic losses from all disaster events…indicates the large opportunity for insurance to help strengthen worldwide resilience against disaster events,” said the report. The gap was $56 billion in 2015.

Total economic and insured losses in 2015 and 2016:

The two headline loss figures are the highest since 2012 and end a four-year decline as the year saw a higher amount of significant disaster events including earthquakes, storms, floods and wildfires worldwide. The report noted that some events hit areas with high insurance penetration, leading to the 42% jump in insured losses.

Despite the precipitous rise in both economic and insured losses, human losses plummeted to approximately 11,000 lost or missing in 2016, down from more than 26,000 in 2015.

Of the 327 disaster events last year, 191 were natural disasters while 136 were man-made. Regionally, Asia experienced the most disaster events with 128 leading to approximately $60 billion in economic losses. Asia also had the single most costly disaster event of 2016 as the April earthquake on Kyushu Island, Japan caused an estimated $25 billion-$30 billion in economic losses.

Insured losses of $54 billion almost equaled the $53 million inflation-adjusted annual average of the past 10 years, said the report, despite being 42% higher than 2015’s $38 billion. Natural catastrophes accounted for $46 billion of insured losses, equal to the 10-year annual average, as man-made disasters led to $8 billion of insured losses, according to the report.

“In 2016, both economic and insured losses were close to their 10-year averages. Insured losses made up about 30% of total losses, with some areas faring much better because of higher insurance penetration,” Kurt Karl, Swiss Re’s chief economist said in a statement.

More than half of insured losses occurred in North America as a record number of severe convective storm events hit the region. These included an April hail storm in Texas, which caused $3.5 billion in economic loss and $3 billion in insured loss as some 86% of losses were covered. An August system brought severe storms and flooding to Louisiana, causing $10 billion in economic loss and $3.1 billion in insured loss.

The region saw several major disaster events.

In May and June, wildfires in Alberta and Saskatchewan, Canada caused $4 billion in economic losses and $2.8 billion in insured losses, Canada’s largest-ever insurance loss. The fire consumed 590,000 hectares of land and caused the evacuation of about 88,000 people. In October, hurricane Matthew, the first Category 5 storm in the North Atlantic since 2007, led to $12 billion in economic losses and $4 billion in insured losses while also, sadly, causing the greatest loss of life as 700 were lost, mainly in Haiti.

Flooding across Europe and China was also devastating at times. In May and June, severe rain and floods hit Belgium, France and parts of Germany, causing economic losses of $3.9 billion and insured losses of $2.9 billion. Flooding along China’s Yangtze River basin caused an estimated $22 billion in economic losses but low insurance penetration, in contrast to Europe, led to insured losses of just $400 million, according to the report.