Speaking to John Ludlow, Chief Executive Officer of Airmic, it became clear that there are many changes and innovations on the horizon. As he explained, we are living in an unprecedented world of uncertainty, and in order to find new solutions for this new world, the industry needs to align itself and collaborate with businesses in order to find the answers that will create mutual value.
A world of new opportunities
Q. The theme of this year’s Airmic conference was New World; New Solutions. Why did you decide on this topic?
A. We live in a new world where technology is enabling the development of society and of business. In short, it has changed everything - how we live and how we work. Last year we launched the latest in Airmic’s “Roads to” reports entitled Roads to Revolution. It describes how to become more resilient in this digital age by building a transformational capability to the resilience model described in Road to Resilience.
This year, I wanted to hear from our members and partners about how they saw this new world, and find out what they were experiencing and how they were responding to it. The Airmic conference is a great place to collaborate and work together to find new solutions, hence the fitting title. It is a great platform for everybody to talk about the huge change in circumstances that we find ourselves in. But, in twenty years’ time I am sure we are going to look back and think that this was an exciting time to live in.
Q. What is Airmic’s message about risk and what do you hope people took away from the conference this year?
A. To succeed in the new world we need to align and collaborate in order to find better solutions to create mutual value. This uncertainty is driven by connected risks and a more dynamic and volatile environment. We all need to question what it is that we are trying to achieve as a profession – by which I mean both risk and insurance – and then work better and more closely together to build new solutions. As a profession, we are traditionally quite transactional but we need to move to more of a strategic partnership in the corporate space, looking at the real purpose of the partnership and working much more collaboratively to a common aim.
Q. Tell us about the true nature of risk and how it has the potential to make businesses more profitable as well as robust.
A. Risk is about the effect of uncertainty on objectives. Good risk management is about understanding what might happen and doing something about it to achieve the best outcomes. This is as much about opportunity as it is about vulnerability. The world is a very dynamic place and businesses that understand how it is changing are better able to defend it and themselves, while taking advantage of the new environment. If you don’t know what is going on around you then you won’t see the opportunities, and you won’t see the threats either.
Understanding the changes in circumstances that affect our future performance is key to seeing opportunities and reducing unnecessary controls. For example, we use standard practices to understand the opportunities and the challenges; new markets opening or declining in both segments and geographies, new channels to market, competitors failing, new competitors arriving, and the developments in products and services. In other words, effective risk management informs positive strategic decision making.
Q. What trends are having the most transformative effect on business and risk managers?
A. Let me start with business first. Technology and the rise of technology – data, analytics, big data, and AI – is already having a big impact on businesses and contributing to market disruption. Take, for example, the impact of Amazon on the high street, FinTech on banking, AirBnB and Trip Advisor on hotels and travel companies. The development of the global economy is impacting where value lies, in particular globalisation, the rise of China and the rebalancing of growth towards the East away from the West. Societal changes are also important, especially generational changes. Millennials and younger generations have different values, they communicate differently, they consume in different ways. Businesses are having to adapt to their needs. The growth in intangible assets is also a huge shift that not all businesses have fully adapted to. Reputation and data are much more highly valued proportionally than the physical assets and they need to be managed accordingly. Finally you have got climate change. We may not all realise it, but it is starting to impact business in a big way.
The risk manager is also seeing a lot of change – the most immediate one is the connectivity of risks. The risks no longer sit in nice, neat silos, they connect, which is why the world is much more unpredictable. Risk managers only used to worry about their own company but now they need to worry about the wider eco-system, the supply chain and the routes to market. The risk manager can no longer just look at their own business but they need to look at the wider business eco-system that they are sitting in. The risk manager has to be a collaborative person who can walk in the shoes of everybody else and partner with them in order to get joined up thinking. The risk manager has had to shift from being an operational person to being a much more strategic person.
Q. How would you say the role of the Risk Manager has changed over the years? Are they having to work in different ways in order to face new challenges?
A. The position of the risk manager has grown from a technical manager to a leader. From operational to strategic. From silo to collaborative. From reactive to proactive. And what they are doing is collecting and analysing data from not just the past but also performance data from the present, in order to get business intelligence to model and better prepare for the future.
Q. The industry is becoming much more competitive with businesses constantly having to reinvent themselves; what would you say are the main reasons behind repurposing a business?
A. It is really important to repurpose. Businesses are currently waking up to the fact that there are new capitals at play like data, intellectual property, and trust in relationships. Key relationships are the new capitals, and there is a shift in the type of assets that underpin the evaluations. Ultimately there is a need to align a wider group of stakeholders to a common purpose and to create more diverse and mutually supportive outcomes. It is a jigsaw puzzle – there are lots of pieces that come together to form the modern day business eco-system. Somehow you need to align everyone in it and fit all the pieces together.
Q. How can we bring risk management more into the boardroom?
A. The first is to align the purpose of the business with the strategy plan. It is about making the business successful and resilient.
Don’t try to aim straight for the board room, work with peers and the c-suite teams and get to grips with how people interact with different parts of the business. The golden ticket that the risk manager has is that they are one of the few people that can have a view across the whole organisation, most people are sitting in a silo. They need to use that ticket to their advantage.
Q. How can Risk Managers and Insurers work more effectively together in order to identify new risks and come up with new, bespoke solutions?
A. This is a simple one. It is the risk manager and insurance manager who need to bring the risk owners, who are generally in the c-suite, and the solution providers together. It is about forming strategic relationships and aligning them behind the customer’s problem.
Q. How would insurers’ access to data add value and provide support to risk managers?
A. It can help in many ways. First, improved disclosure should reduce the uncertainty over claims and cover. Collaboration should reduce the losses and it should improve the pricing for better managed risks.
Second, an improved understanding of the exposure by the insurers and the brokers will support new product development. In our transactional world, insurers and the brokers often come up with new products by working on their own and then they take them to market and no one buys them and that is because they didn’t involve the customer enough.
Third, insurers and brokers have access to a wealth of information that can give wider support to businesses. Our members tell us that they don’t just want insurance products, they want support in reducing risk. Data is key to this.