Would your client actually buy a pandemic risk product?

Even if insurance products were available for pandemic risk specifically, several businesses say they wouldn’t anticipate becoming more dependent on risk financing or insurance as a result, according to the results of a global survey from Aon.

Few companies have filed an insurance claim related to the COVID-19 pandemic, even though doing so “could have a significant impact in how they react and respond to future crises and finance risk, especially if insurance companies innovate their offerings,” Aon plc notes in its survey, Reprioritizing Risk and Resilience For a Post-COVID-19 Future.

This finding confirms the importance of pre-event crisis management planning and the speed at which organizations have been forced to respond and adapt to the pandemic, Aon said in the report released last week. “It also exposes the inflexible nature of the commercial insurance market and how this rigidity leaves many significant commercial risks uninsurable.”

More than four out of 10 (43%) global respondents did not believe their organization would be more dependent on risk financing or insurance, “even if insurance products are available that apply to pandemic risk impacts.”

Aon’s survey, which included responses from Canadian risk managers, found that risk managers generally were caught unaware when the global COVID-19 pandemic hit nearly one year ago.

Eighty-two per cent of respondents in the global survey said that, prior to COVID-19, a pandemic or other major health crisis was not a Top 10 risk on their organization’s risk register. In North America, fewer than one-third (31%) of respondents had a pandemic plan in place prior to COVID-19.

In fact, at the time of Aon’s Global Risk Management Survey in 2019, pandemic risk ranked 60 out of 69 identified risks, the brokerage said.

“Enterprise risk management strategies and management teams were therefore unable to rapidly respond to the threat of the pandemic and, when it hit, their risk infrastructure struggled to cope with the initial response,” Aon said in a press release Feb. 17 announcing the survey results. “COVID-19 has shown that it will be imperative for businesses to reprioritize risk and to innovate and explore new risk management strategies.”

When the global COVID-19 pandemic hit, North America was generally not prepared with pandemic plans in place. Before COVID, 52% of respondents in the Asia-Pacific (APAC) region had a pandemic plan in place, compared to just 31% in North America and less than 30% in both EMEA (Europe, the Middle East and Africa) and LATAM (Latin America).

Companies in the APAC region were supported by state-run, track-and-trace technology. They had also built more robust pandemic programs in response to similar threats already faced (such as SARS and swine flu), Aon reported.

Conducted in 2020 Q4, Aon’s web-based survey was completed by more than 500 participants representing organizations of various sizes in 41 countries. Responding risk managers, chief financial officers, treasurers and others provided feedback and insight on their insurance and risk management choices, interests and concerns.

Aon found that fluctuating COVID infection rates within regions influenced three main stages in which businesses now find themselves: 1) react and respond, 2) recovery, or 3) re-shape. For example, North America has the highest proportion of organizations in the recovery phase (59%), whereas 36% of APAC organizations are in the reshape phase, which is higher than the 29% benchmark.

“Despite these differences, one core theme emerged: More than half of companies report that they expect COVID-19 will continue to impact their business a year from now.”

Aon’s research suggests that moving forward, risk and business leaders must broaden their perspective to include evaluation of major shocks, not just anticipated losses. A more “cohesive and integrated approach” will be necessary to recover not only from the pandemic, but from future shocks, the brokerage said. Eighty percent of global survey respondents reported the pandemic has taught them to take an enterprise-wide approach to incident management, collaborating across functional units, including risk, HR, IT and finance.

Rory Moloney, CEO of global risk consulting with Aon, said the pandemic will no doubt permanently change the way companies operate. Businesses will be asking what risk management and resilience should look like going forward, he said. “Among the top priorities for companies seeking to re-shape their business are the new and accelerated use of technology, redeploying resources, workforce planning, and re-thinking the future of work,” he said. “This is only the beginning of a much more long-term evolution in risk management.”

Equally important is for the insurance industry to innovate in response to companies’ changing needs, increasing global volatility, and emerging risks, said Stephene Ashikwe, Aon’s senior vice president of global risk consulting. “Successful insurance solutions in the wake of the pandemic will be more agile, strategic, targeted and scalable.”

 

Feature image via iStock.com/Blue Planet Studio