Why it's never been more important to build resilience
Charles Bush, head of large and complex and commercial claims at Zurich, argues its incumbent on insurers to work with policyholders on innovating new resilience solutions.
This article was originally written in partnership with Insurance Post, to view that please click here.
Insurers have long known that an ounce of prevention is worth a pound of cure. As far back as the 18th century, our industry established the UK’s first fire brigades after realising that putting out blazes was cheaper than rebuilding properties.
As the world changes ever faster, this approach has never been more relevant, and our sector’s role as risk mentors has never been more important.
Focus on using insight to support risk prevention
Insurers are there for our customers when things go wrong, but in recent years the focus has increasingly sharpened on using our insight to support risk prevention and mitigation.
As those nascent fire brigades could have told you three hundred years ago, in the long run it doesn’t pay to cut corners when building resilience in our businesses, communities and personal lives.
A perfect recent example is the supply chain disruption caused by geopolitical fragility and the Covid pandemic, as well as unforeseen events such as the Suez Canal blockage and the tragic maritime event in Baltimore. The resulting business interruption losses have been felt right across global industry, including into insurance.
But it doesn’t take a pandemic or a war to put the brakes on a business. Recently, we saw a toiletries manufacturer close its doors after a factory fire disrupted the flow of a critical chemical from a supplier. The component made up about 1% of the company’s end product, but without it, and with limited alternative sources, production stopped completely for more than a year.
This might have been avoided simply by regularly reviewing and stress testing supply chains and having contingency plans in place. This issue is rife across many sectors, and it’s incumbent on us as insurers to share our knowledge with clients on the dangers they face.
For the risks insurers can’t cover – according to Zurich Municipal uninsurable risks make up about 80% of all perils facing business – there are still ways we can help.
Many of these risks are intangible, for example, reputational damage following a major incident, or are retained risks that the business chooses to self-insure either through an increased retention or the increasingly popular captive arrangement. A firm’s ability to effectively manage these dangers is directly dependent on their awareness and preparedness of them.
Economic squeeze impacting risk management
The recent economic squeeze has led to many smaller firms employing unskilled workers, or deprioritising risk management.
As a result, we’re seeing a growing trend of severe workplace injuries, for example people falling from heights, or sustaining severe injuries in workplace transportation accidents, most notably involving forklift trucks in warehouses. This is a tragedy for the workers, and in circumstances where indemnity limits are not sufficiently high, firms run the risk of being dramatically underinsured in the event of severe injury.
These are the sorts of losses that will also bring regulatory attention and the risk of prosecution. The good news is that so many of these cases can be easily avoided by the implementation of robust and cost-effective risk management protocols.
'Insurers have part to play'
Insurers have a real part to play in encouraging proper workplace safety and best practice, as well as effectively communicating the importance of adequate cover for both legal liabilities and in respect of own property related risks.
While no amount of prevention will stop all losses, sometimes the losses themselves present an opportunity to build resilience via sustainable reinstatement.
For example, after a recent flash flooding event in central London, we worked with our customer to repurpose their claim settlement to include the installation of flood resilient doors. These and similar approaches not only provide an opportunity to ‘build back better’ but also adapts their property to being more resilient and can reduce premiums too.
Likewise, rehabilitation of injured workers can promote early return to work and the retention of valuable skillsets and support employee sustainability for the business, avoiding the need for costly recruitment and replacement in cases where the injured person may have otherwise left.
We recently commissioned research that found work absences due to long term sick will cost British companies £66bn in lost productivity by 2030.
Powerful voice
As an industry we have a powerful voice, and we shouldn’t be afraid to use it. We have an excellent opportunity to lobby government around the things which we consider important.
For instance, it is essential that building regulations keep pace with the advances in technology and the built environment.
Examples include the ferocity of lithium battery fires, which may require changes to fire stopping, as well as building regulations extending beyond the prevention of loss of life into the protection of the built environment.
So, how do insurers put themselves in the best position to do this? Fundamentally, positive outcomes rely on a cross-skilled team that can quickly adapt to the environment around them.
There is also an opportunity as an industry to think more broadly around the topic of building resilience and develop novel and innovative solutions using emerging technologies such as leak and heat detection, as well as AI.
Encouraging two-way conversation
As the world grows ever more complex, it is incumbent on us as risk experts to guide our policyholders, but there is much more work to be done to encourage a two-way conversation.
Innovation in this area is essential, and the industry will need to develop creative ways to engage with our customers as technology advances.
While risk will always be there, building resilience in partnership with our customers will help them, and us, to meet tomorrow prepared.
