Never before, or at least never in the modern era, has the world witnessed such an extraordinary level of risk and uncertainty.
Although a cursory look at the news confirms this, in-depth surveys like the 2021 State of Risk Oversight Report from North Carolina State University show that 67 percent of organizations across the board believe that the volume and complexity of risks is “mostly” or “extensively” increasing, a 12 percent jump over last year.
Executive SummaryHaving too many goals. Focusing on external stakeholders. Narrowing your future-view to three years out. Forgetting about succession planning. Having minimal interdepartmental or team communications…
Insurance company leaders are focused on risks like ongoing litigation and increasing claim volumes, but they may not be mindful of risk-related areas around goal setting, strategic planning and operational risk that can damage their companies, too, Consultant Carol Williams reminds carrier leaders.
Insurance companies are by no means immune from this uncertainty. Issues ranging from industry-specific threats like ongoing litigation, increased claim volumes and skyrocketing reinsurance rates to society-wide trends like shifting employee expectations and the constant threat of displacement by more agile competitors hang over insurers like the proverbial Sword of Damocles.
As a leader in an insurance company, you are certainly familiar with risk. After all, your company is in the business of helping policyholders manage risk. Good leaders of insurance companies have a solid grasp of underwriting, investment and other financial risks since you manage them day in and day out.
However, there are other risk-related areas where many insurers make mistakes that can prove disastrous if left unresolved, including but not limited to:
- Moving on an idea without considering its place in the strategy—a.k.a., the “shiny-object” syndrome.
- Having too many goals, which causes your company’s focus and resources to be spread too thin and ultimately leads to failed or delayed initiatives or projects.
- Tendency to only think about impacts to outside parties like policyholders, possibly at the expense of internal impacts such as personnel, processes, internal communications and more.
- Any “risk management” is done at the departmental level with little to no connection to strategic objectives, which often leads to new risks.
- Only considering the near-term (one-to-three years) without thinking about the long-term (10-plus years) as well.
- Limiting the view of opportunities to business expansion rather than considering potential efficiencies in the organization’s structure or expanding the use of existing tools to address manual processes, especially as the company grows.
As an industry professional with a deep understanding of the types of risk your company underwrites, you need to lead a fundamental change in how you and everyone in your company view risk in order to remain competitive and be successful in the long-term.
It may seem daunting to change your current approach. Let’s face it—many of these issues, especially on the operational side, just are not sexy topics. But it is critical to your company’s future to address them sooner rather than later.
No longer can risks and other important matters be handled on a case-by-case basis. If you as a leader do not start the process of changing the approach to risk and related matters, your company’s journey will be marred with turbulence as you scramble from one crisis to the next.
On the operational side of the coin, many companies commonly overlook risks emanating from third parties, cyber- and privacy-related issues, a lack of succession planning, no cohesive interdepartmental or team communications, and an absence of basic corporate policies like communications with external parties (i.e., regulators, policyholders, the press), records retention and disposal, and more.
Not sexy, huh? Although these operational topics are not exciting, addressing them without being stifling or bureaucratic provides a solid foundation that enables your company’s future success. Think of it this way: If a house is built on quicksand, how long do you think it will stand?
Additionally, having an agreed-upon approach for initiatives and goals rather than an ad-hoc process will go a long way, but only if everyone—including you and fellow executives—is held accountable for following it.
With these issues in a place where they can support goals and initiatives in an agile way, you are ready to begin developing a more systematic and informed approach to strategic decisions.
As mentioned in the list above, shiny-object syndrome is a challenge with which many carriers struggle. To address this issue, it is strongly recommended you only have one (yes, one!) overarching goal for the year based on your company’s mission, at least in the beginning.
With the annual goal in hand, tools like scenario planning can be brought in to understand what could get in the way of achieving the goal, what needs to be in place for it to be successful, the opportunity costs of a particular course of action and more. (Related article: “How to Achieve Organizational Goals With Scenario Planning,” Carrier Management, Q3 print magazine, p. 8) Advanced simulation and modeling can be used to gauge the likelihood of success for a particular course of action, but only if your company has the capability to do so.
It is through this analysis process that threats and opportunities are identified and understood.
From here, you can then begin to get an idea of what risks will need to be managed, which ones you can accept, and which ones you need to monitor in both the short- and long-term. Identifying those buckets requires an understanding of the kind and level of risk the company is willing to take in pursuit of its goal and what actions you will take if—or rather when—the situation changes from when you initially decided to move forward.
And remember, this applies not only to threats to accomplishing your goal but to opportunities as well. Are there measured risks you can be taking to increase the odds of success? As we learned in the list above, opportunities do not have to mean expansion only in the traditional sense but can also include how your company is structured and operational matters like the kinds of tools you use and more.
Contrary to the perception many have, this enterprise-level risk management is not just about preventing losses, satisfying regulators, following a particular standard, or getting every known risk on a list down to a “green” or some other acceptable level. Instead, as Norman Marks writes in his book “Risk Management in Plain English: A Guide for Executives,” it is “about understanding the interrelations between risks, how they impact goal(s), and incorporating this into decision-making in a systematic way.”
Regardless of how your company defines success, addressing operational gaps and taking a risk-informed, systematic approach to decision-making has to be a part of enabling that success.
In the end, you cannot purchase an insurance policy (or six) to cover the risk of a failed strategy, disgruntled employees, or displacement or acquisition by a more agile competitor.
The insurance industry will always be relevant, but what is always changing is how it interacts with various stakeholders. These can include internal stakeholders like employees or external ones like policyholders, reinsurance brokers, regulators, the media and more. Either way, you and the other leaders must think about both the strategic and operational risks and opportunities in front of the insurer.
Is your company prepared for what lies ahead?
Will you enable your company to move into the future with confidence, or will you always be reacting and scrambling from one crisis to the next?
Are you ready to seize the future?