Airmic Conference 2014 Roads to Resilience Wednesday 18th June 2014 Arnout Van der Veer Airmic Martin Caddick PwC Neil Allcroft Crawford and Company Ian Canham Lockton Agenda Introduction to Roads to Resilience, Arnout Van Der Veer, Airmic Board Resilience – Board, Culture and Management Views, Martin Caddick, PwC Practical Progress, Neil Allcroft, Crawford & Company Insurance considerations, Ian Canham, Lockton Open Discussion Roads to Resilience Case study research into what does ‘good’ look like - Cranfield Business School 2013 In depth case studies of; AIG Drax Power IHG JLR Reviewing People and culture Business Structure Strategy, tactics and operations Leadership and governance ODA TTP Virgin Atlantic Zurich Insurance Preparing for Roads to Resilience Conclusions of Roads to Ruin - Catastrophic failures of risk management appear to take everyone by surprise… …and yet with the benefit of hindsight the underlying causes of these failures appear obvious Can we apply the lessons of hindsight to planning for the future?! Roads to Ruin: Seven key points of failure Board experience, skill and lack of NED control Board risk blindness Inadequate leadership on ethos and culture Defective internal communication Organisational complexity Risks from remuneration structures Risk Glass Ceiling Roads to Resilience Identified Key Questions and Enablers Questions Enablers: 1. How do resilient organisations oversee and manage their risk management strategy? 2. What are the enablers, drivers and risk management practices in place? 3. How do they measure the results and impact of risk management activities? 4. What are their governance (and empowerment) controls and strategies? 5. What are the critical leadership and business structure issues? a. People and culture b. Business structure c. Strategy, tactics and operations d. Leadership and governance Roads to Resilience Outcomes: 5 Resulting Principles 1. Resilient companies have exceptional risk radar to detect changes in the external and internal situation 2. Resilient companies have diversified resources and assets to facilitate alternative approaches 3. Resilient companies build strong relationships and networks, both internally and externally 4. Resilient companies have the ability to respond rapidly and decisively to an emerging crisis 5. Resilient companies review and adapt based on experience and changing circumstances Components of Principles and Business Enablers Principles: Business Enablers: Roads to Resilience: Model for Resilience PwC – Board, Culture and Management Views Some reflections…. The traditional ‘protective disciplines’ are not enough. You can do these well and still fail. It is not going to get easier – increasing speed and complexity makes risk less predictable. Cannot be done in silos - resilience requires leadership from the top. Who We Are What We Know What We Do How We Do It Hot Topic? Academia : Harvard, NYU Cranfield, Leeds, Glasgow, Warwick PwC Barriers and challenges The fog of resilience You need to: be able to measure key factors Protectionism Preconceptions Lack of appetite Conflicting definitions discuss, debate, make intelligent decisions based on key factors Resilience Limited horizon (time) False assurance Lack of a delivery plan – too conceptual Limited/no consensus use what you have, but cut across silos Crawford – Practical Progress New Risks into ERM Process Classic frequency/severity matrix Need a monetary value to inform risk appetite for emerging non physical risks When does solvency, interest cover, credit rating, dividend cover become stressed? What is the $£ value of risk appetite per risk and in the aggregate Real problems assessing these values in respect of; Cyber Reputation Regulation Lack of historic reference points to provide guidance and benchmarking. Practical Progress Scenario Planning More organisations/corporates are doing pre planning workshops within their businesses, driven by ERM compliance. This helps to engage and inform the risk management function more widely with operations Engages with profit drivers e.g. Markets, Supply Chain, Unique Delivery and sources of competitive advantage Drives out the key $£ risks and forces quantification and prioritisation Currently this is episodic in many companies, rather than an embedded and living process What should risk managers and insurers be thinking and doing? Lockton - Insurance Considerations Insurance and the Road Series of Reports The majority of Airmic members are insurance buyers Roads to Ruin found that insurance makes no difference in protecting companies in times of ruin Roads to Resilience did not identify insurance purchasing as a required enabler to a resilient company Is this fair and if so, can we make insurance more relevant? Insurance Considerations Do insurers take these findings into account? Long term robustness and the identification of required principles and enablers provide longer term underwriting data, rather than short term lagging indicators such as claims. Insurance Considerations Do buyers take these findings into account? Short term buying patterns and market behaviours inhibit insurers ability to meet the real risks facing the Insured Insurance Considerations Does the report appeal to an insurer’s/client’s beliefs but clashes with their actions? Is there a fundamental mismatch between long term companies resilient needs and insurance market behaviours, which means insurance will always be a tactical not strategic purchase? Can insurers differentiate risks from both a pricing and coverage perspective on long term resilience findings versus short term indicators? Will clients take a longer term view of pricing even if it moves against market trends? What risks are insurers willing to accept to create true risk partnership with their clients to ensure insurers get a fair share of the risk financing spend? Insurance Considerations Or are brokers to blame? Final Observations Effective risk management is NOT just about compliance Risk is at the heart of strategy and effective risk management should be an enabler and a potential differentiator Growth in a flat market can only be achieved by taking risks – these must be calculated and transparent Reputation is critical and reputation risk management should be prioritised The tone is set at the top The information required to take risk aware decisions is most likely to exist already inside the company Route to Resilience? How can resilience be achieved? How can current levels of resilience be measured? Is wide organisational change required, or does resilience fit with your current agenda? How do you ensure the Board receive the correct messages? What barriers to resilience are anticipated? What would assist you in making your organisation more resilient?