In an environment of rapidly evolving risks, purely anticipating risk is not enough. Organizations also need to focus on building resilience to effectively manage risk and position themselves for long-term sustainability, according to a global insurance executive.
Joe Plumeri, chairman and CEO of Willis Group, speaking at the World Captive Forum in Maimi, said hallmarks of a resilient organization include acknowledging the difficulty of predicting the future or so called “black swan” events.
He praised captives as an effective and creative tool for helping corporations manage today’s “unpredictable” risks.
Plumeri said organizations need to operate in a dynamic fashion to make adjustments in real-time when a catastrophe strikes, while simultaneously preparing for the future.
“In order for companies to build resilience, they need to ask themselves, will we be here in 10 years? Will we be here in 50 years?”
Plumeri noted that Miami was the site of the costliest disaster in U.S. history, a hurricane in 1926 that wiped out the city, largely, he said, due to a flawed response.
The great Miami hurricane of 1926 resulted in severe human loss and steep economic losses, which if adjusted for 2010 inflation would total of $169 billion, according to the National Oceanic and Atmospheric Agency (NOAA). He said a catastrophe modeler estimated that this storm today would cause an estimated $101 billion in insured losses. Plumeri suggested an event of this scale would draw down a significant portion of the global insurance capacity.
“Traditional property/casualty risks endure, but the nature of risk is changing,” Plumeri said.
The top five risks on the minds of business leaders today are not easily solved by purchasing insurance, according to the the Willis executive, who cited examples including loss of customers, regulatory investigations and reputational risk.
Meanwhile the global marketplace continues to drive other risks including political, supply chain, cyber and balance sheet risk, he said.
“As the risk landscape evolves and includes both natural and man-made catastrophes, organizations need to build resilience against the unpredictable. Insurance serves as a powerful ally for organizations to tackle these new risks and in many ways, insurance is the bridge between anticipation and resilience,” he said.
The captive insurance industry, born out of the insurance liability crisis of the 1980s, began as an “exercise in anticipation” as risk managers needed solutions when they found the insurance marketplace unreliable. Now captives stand as a testament to resilience, Plumeri said.
“The captive insurance industry has evolved and now offers a robust and effective approach to help firms become resilient in the face of unpredictable risks. Captives play a key role in the insurance industry, offering creative solutions for critical risks,” Plumeri said, citing recent examples where organizations have used captives to manage exposures including trade credit, stock-in-transit and product liability.
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