Businesses are operating in unpredictable times and preparing for the what if’s and the absolute worst-case scenario will keep insurance relevant.
For both insurers and their customers, the past decade has included some surprising developments, and it appears this is a growing trend. Whether it’s an unexpected election result or an extreme weather event, businesses are clearly operating in unpredictable times. However, periods of change can create opportunities, especially if businesses are able to think strategically and manage the enhanced levels of risk that come with increased volatility. Having the right support in place, however, is crucial.
Take the UK’s exit from the European Union for example – the result of the referendum was unexpected for many, and we still don’t know where we are headed at the end of the month. There is a lot of noise surrounding important issues such as this and global trade disputes, and this is likely to continue for several years to come. But companies should step back from the media headlines and not get bogged down with the issues of the day – there are likely to be long-term trends out there that are more relevant to the future success of a business.
A recent study by QBE, which looked to determine whether the environment businesses are facing is becoming more unpredictable, found that most of the least predictable years in the past three decades have occurred in the last 10 years. This increase in unpredictability is largely driven by deterioration in political stability since the millennium, compounded by the economic and political fallout from the 2008 financial crisis. Our customers have been saying for several years that the business environment is becoming more unpredictable. Political uncertainty from Brexit and global trade wars are creating substantial uncertainty for companies today, but longer term, climate change, an ageing population and the implications of emerging technologies are likely to be sources of unpredictability for some time yet. Setting strategy and scenario planning Many businesses have to think five, 10 or more years ahead. However, companies may have to invest in new business models at a time of fast changing technology and consumer trends.
Artificial intelligence and automation, for example, will have huge implications for the workplace and wider society, while political and environmental factors could lead to big changes in demand for goods and services. Increased unpredictability compounds the problem of business planning and strategy setting. This means the insurance industry must be thinking far enough ahead to develop solutions for their customers in the long-term, while remaining flexible enough to support short-term developments. The antidote to unpredictability is likely to be found in the development of risk management and robust scenario planning. As the size and complexity of risk grows, risk management and governance frameworks are becoming more sophisticated, and boards are increasingly demanding better information on risk.
What it means for us as insurers is that we need to work to be more creative when it comes to helping our customers not only protect themselves against the unexpected but take advantage of it too. Unpredictability is here to stay, and the speed of change does not look like it will slow any time soon. But businesses can get better at preparation and planning, which should improve our ability to cope and adapt. Organisations that survive and succeed in an environment of enhanced unpredictability will be those that are best prepared.
It is important to build resilience, but also challenge long term business models. We must think of all the what if’s and be prepared for the absolute worst-case scenario.There is no silver bullet that can cover every outcome, but with some creativity, we can help minimise the impact unforeseen events can have on our customers and be ready to support them no matter what arises in the future. If the insurance industry can step up to support businesses for an increased amount of unforeseen risk scenarios, it will not only be vital to our relevance as an industry, but a key differentiator for those that are willing to adapt and think more creatively.
This article was first published in Insurance Post