Mitigating risks in the post-Covid world

LAST YEAR was an eye-opening reminder: many companies were not adequately prepared for the meta risks that experts have been warning about. It is thus timely for the World Economic Forum to launch the 16th edition of the Global Risks Report - an insightful delve into the major risks we face as nations and societies.

I have reflected on the report and will share some learning points:

• Adapt early to climate change implications.

Around 40 per cent of the US$210 billion in global losses from natural hazards were uninsured. While grappling with the impact of the pandemic, companies should not lose sight of threats from climate change.

• Rapid digitalisation will intensify operational, ethical, regulatory, and workforce-related risks.

Digitalisation has exponentially increased companies' cyber exposures. To keep up to speed with the pace of digitalisation, companies should also establish necessary digital infrastructure to support operations and ensure relevant and sufficient workforce training.

• Workforce safety and wellbeing is foundational to your business.

Increasingly so, a company's ability to ensure its employees' well-being, including mental, financial and social on top of health, is now crucial to its business operations, revenue, reputation and talent acquisition.

• Operational and reputational risks will come under scrutiny.

Companies are being held to even higher standards than before by investors, employees, and consumers in responding to critical areas such as climate change, data breach and human rights issues. Factor this dynamic when assessing your risk profile.

OPPORTUNITIES FOR ASIA

While the Global Risks Report covers mostly challenges in the global risk landscape, I do note some silver linings and opportunities for Asia.

Opportunity for an equitable recovery: The pandemic has forced many much-needed conversations on a more equitable distribution of resources. In Asia, there is still a lot of room for employee benefits to meet the evolving needs of our workforce. For example, adoption of telehealth only picked up due to pandemic restrictions according to our MMB Health On Demand study. We also see the need to be more inclusive of diverse populations, so that alternate family structures or roles receive an equitable amount of benefits as compared to a typical nuclear family.

Increased impetus around technology governance: The pandemic-accelerated pace of digitalisation necessitated governments to speed up progress around technology governance. Governmental responses thus far, such as the recent announcement by the Monetary Authority of Singapore, indicate that the tech regulatory landscape will continue to strengthen and grow - reflecting an increasing acceptance of governmental role (and responsibility) in providing clear guidance to businesses while ensuring a level playing field. This also signals the importance of technology risk management.

Organisations with empowered chief information security officers are in prime positions to collaborate and even thrive from this increased impetus if they can quantify the economic costs of cyber exposures and optimise investments in risk mitigation and transfer. The quantitative framework also enhances preparedness to cyber attacks, as greater sophistication of this methodology can lead to innovative risk strategies that reduce costs.

Creating a greener world: Many governments are focusing on a "green recovery" with over 146 stimulus plans and programmes introduced, announced, proposed or implemented in 2020.

Recently, the Singapore government announced in its Budget a suite of initiatives, such as issuing green bonds to fund green public infrastructure projects, to tackle climate change. As the global energy supply mix continues to evolve, and Asia is expected to have 50 per cent of global investments in renewable energy, the region will continue to attract more opportunities if renewable energy remains competitive through adopting more efficient technologies and an innovative approach to mitigate risks to reduce the total cost of risk.

As many of these "green" technologies come from Europe, it is now even more important to critically analyse the risk when applying these new innovations in Asia and prepare for climate-related risks by identifying highest-impact natural hazards, quantifying the financial loss exposures and mitigating the loss exposure.

These dynamics have brought sustainability or environmental, social and governance (ESG) programmes to the fore as key components of long-term value and business resiliency. Initiatives such as United Nation's Principles of Sustainable Insurance highlight the need for companies' core enterprise risk management (ERM) assessment framework to also be integrated with material ESG risks as they too can result in significant financial losses.

Regionalism on the rise: We have seen the rise of new trade deals, such as the RCEP signed between 15 Asia-Pacific countries, while the EU and Asean have upgraded their ties to a "strategic partnership". With the pandemic disrupting global supply chains and impacting the assessment of business interruption exposures globally, we are already seeing increased in-sourcing, and more supply chains will likely be brought closer to home.

This presents MNCs with viable opportunities to expand their footprint in Asia should they address their bespoke risk needs related to supply-chain, political/sovereign, M&A, tax, trade credit, and such. An organisation's resilience to respond quickly to threats with tailored solutions is enhanced by its ability to provide an integrated approach to risk management that evaluates the impact and interrelation of risks across business areas, assets and operations. This approach includes supply chain (regularly one of the highest-ranking risks of concern to corporations), business continuity (increasingly critical after the pandemic's shock to global supply chains), natural catastrophe and claims.

THE ROAD AHEAD

Organisations will be judged on how they react to shocks across the operations and supply chains, which requires a more holistic approach to enterprise risk management and balance between robustness, efficiency and agility.

With our clients here in Asia, focus has shifted from 'risk optimisation' to 'resilience building', coupled with a surge in interest in alternative risk management measures like parametric and captive insurance. Organisations are also realising the greater importance of having a trusted risk adviser giving them the knowledge to navigate an increasingly risk-complex future.

• The writer is regional CEO of Marsh Asia