While the impact of digital transformation was beginning to be felt several years ago, the COVID-19 (coronavirus) pandemic has accelerated developments and disrupted business and daily life as we knew it. By any measure, events in 2020 rearranged the risk landscape in unprecedented ways. Amid the COVID-19 pandemic, organizations had to manage the effects of a recession, the rise of economic nationalism, climate change and other challenges. The pandemic has instilled fear and uncertainty in many, challenging leaders in government and business to allay concerns and respond to the crisis. The discipline of business continuity has been turned on its head and probable been changed forever.
The virus accelerated major changes in business models, including for TMT companies, as employees lucky enough to keep jobs were forced to work from home, shop online and cancel nonessential travel. Microsoft, Amazon, Alphabet, Spotify and other technology companies may have benefited, but equally, parts of the industry will emerge from the pandemic in altered forms.
After a year into the pandemic, TMT businesses are, for the most part, managing effectively in this different reality and recovery is on the horizon with vaccines becoming available to more people every day. But there is still much work to be done as we prepare for a return to a more normal way of life, whatever that may look like in the end. The past 12 months have seen a magnified and accelerated transformation toward a more global and digital world amid widespread uncertainty and ambiguity. Even as a greater sense of certainty returns, the way organizations lead and manage in this “new normal” will be critical to business performance and their ability to remain competitive and relevant.
These are indeed extraordinary times for us all, but for organizations, a sudden and brutal one-two punch of an economic downturn caused by the COVID-19 pandemic coupled with an already hardening insurance market is creating a seismic shift in the risk landscape and the cost of protection. The hardening of the insurance market is pushing certain buyers of risk transfer to make unsupported, and in many cases, expensive decisions. A risk framework that includes data-driven risk modeling and an explicit view of risk tolerance is therefore required to empower decision making for the short and long term.
The organizations that will succeed tomorrow must ensure the development of resilient operations and workplace cultures, careful risk management and detailed business continuity plans and seek to demonstrate this work effectively to the insurance markets in order to mitigate the impact of a hardening insurance market. At the same time, organizations must ensure that employees keep pace with the evolving workplace (which likely will become hybrid), adopt new technology and processes, update their skills and competencies, and stay engaged and productive. Organizations should examine operations to determine what worked and what didn’t during the height of the crisis to improve operations, risk management and business continuity plans to better prepare for the next crisis. COVID-19 and its disruptive impact on business will accelerate corporate resilience efforts. Although the idea of resilience has been kicked around corporate offices for years, the virus has added a greater sense of urgency. We therefore expect to see new efforts by TMT companies, that are also leaders in their field, to continue to build genuine resilience into business strategies and operations in 2021 and beyond:
Take a (more) holistic view of risk
Hardening insurance market conditions are going to continue
Hardening insurance market conditions are going to continue in major lines of coverage. Organizations should prepare by detecting, analyzing and managing both existing and emerging risks by using all the necessary analytical and advisory tools. Alternative risk transfer solutions and captive insurance strategies will no longer be a luxury but, under certain risk circumstances, a necessity.
Every organization purchases insurance for a particular reason, or as part of a particular strategy. Consequently, we believe that each insurance policy should be evaluated based on its own merits, how it supports your current business strategy and how it protects stakeholders more easily damaged by a severe shock to the income statement and balance sheet.
The ongoing hardening market requires insurance buyers to take a thoughtful approach. As a base, it is important to keep in mind that insurance allows organizations to take risks that would otherwise not be viable from a risk/return perspective.
Expect rigorous insurance underwriting requirements
Underwriting discipline is back with a vengeance and it is a trend that will likely continue for the foreseeable future. In 2021, insurers will apply increasingly rigorous underwriting requirements, and increasingly pay attention to the quality of the risk, as key insurance lines continue to harden. More scrutiny will be on businesses to show, for example, that engineering recommendations are being satisfied, and that they are supplementing the loss control recommendations that insurance companies put forth. In this environment, companies will need to step up efforts to better collect and interpret data around risk exposures and loss experiences which should include data-mining solutions that will enable risk managers and their advisors to identify, prioritize and manage exposures that may have material impact on operations and revenues.
To make matters worse, insurance underwriters are inundated with submissions. When an underwriter is looking at 50 submissions, having a quality submission, quality risk and quality broker matters. Getting to the top of the pile in terms of securing the best coverage and pricing is going to become increasingly challenging. Insureds will have to demonstrate that they are a compelling risk and that they have proactive risk management in place.
Ensure you are prepared for the next ‘unprecedented’ event
As 2020 has clearly demonstrated, no risk or stage in project development and maintenance can be considered in isolation; and 2021 has highlighted the need to future proof the corporate infrastructure against risk extremes. New challenges and risks will unfold when the world emerges from its post-COVID-19 hibernation that, if not managed correctly, could threaten the very resilience and long-term profitability of the business.
Given the ongoing pandemic, the hard market conditions and the threats posed by climate change, having sound risk management is paramount to an organization’s success and survival. It is not about generic risk anymore.
We will continue to monitor and analyze the array of issues facing the global TMT industry going forward, be it the impact of digitization, new working models, pandemic crisis vs pending recovery and then present our findings through the lenses of people, risk and capital, creating content regularly in these three areas to help business better understand and manage the crisis.
