Prevailing Condition of Risk Management in India
Globally, one of the biggest trends we see today is that risk managers now approach analytics as essential and non-optional. However, five years ago most risk managers considered analytics as a nice-to-have. At the time, even advanced risk management departments relied primarily on basic bench marking with occasional usage of property catastrophe modelling and actuarial loss modelling for one or two types of risks. In India too, the explosion in data and technologies represents a change in how analytics is perceived and presents broad opportunities for the insurance industry and how risk may be managed in the future. Considering that 90 percent of the world’s data has been created in the past two years and this volume of data is projected to grow by a factor of ten in the next two years, this trend cannot be ignored.
Identifying, Analyzing and Responding
As businesses increasingly operate as networked ecosystems relying more heavily on the Internet of Things, AI and Robotics, risk management has become a critical consideration for enterprises in India. Therefore, increasingly we see that companies are making strategic business decisions only after a thorough risk evaluation. CROs who were traditionally managing the downside of risk are now being included in boardroom decisions to help management evaluate the upside of risks.
There is also a growing acknowledgement of the inability to eliminate risks altogether, thereby driving risk managers towards assessing, evaluating and prioritising risks before determining mitigating strategies. To address these greater expectations for performance and accountability, Willis Towers Watson has developed a new generation of accessible advanced modelling and dynamic analysis capabilities to provide corporations with unprecedented insight for risk-based decision making. With traditional insurance becoming more expensive, CFOs increasingly challenge risk managers to demonstrate they have explored all risk finance angles – insurance, alternative risk transfer, captives, and higher retentions – to offset price increases, whilst managing exposures within the board and investor tolerance levels.
This requires an apples-to-apples comparison of the total cost of these options including retained loss costs, volatility and management costs.
Historically, risk has been assessed qualitatively and in a siloed manner, resulting in CFOs and CROs using it as supplemental information with no linkage to the big picture. Quantitative decision support (return on investment) can now be applied to insurance spend and risk management resource allocation. Through advanced technology, we can now analyze aggregated risk strategies for property & casualty insurance, pensions, and health & benefits. Once this view is embraced by the C-suite, business, market and operational risks are likely to follow. Risk versus return is not just for portfolio investment theory anymore. Rather, it will be the driver of corporate business strategy.
This Generation of Technologies Helps Us Make Better Decisions and Create Effective Long-Term Strategies
Technologies of Today
Like every other function and industry, risk advisory must continuously improve. Technology, cleverly applied, makes us smarter, better, and more efficient. We can learn so much more by examining the wealth of data now available to us, and only through technology can we run the advanced analytics required to extract actionable information from that data.
The latest developments enable us to evaluate all risk finance options, measure their financial impact, and compare them in objective terms in order to optimise our clients’ risk finance portfolios.
This generation of technologies helps us make better decisions and create effective long-term strategies. For instance, the ‘Extreme Risks 2019’ report released by Willis Towers Watson’s Thinking Ahead Institute identified global temperature change, trade collapse and cyber warfare as the top three extreme risks globally. Having access to the right kind of data and technology will significantly improve the capability of corporates all over the world, including in India, to adopt appropriate hedging strategies. In the last couple of years alone, India has seen some of the worst heat waves and floods resulting in huge losses. In 2018 alone, heatwave along with the worst flooding in over 100 years and a pair of cyclones lead to total damage of nearly USD 38 billion.
Need for Embracing Analytics
A recent Willis Towers study highlighted that most companies across industries and regions are witnessing a greater volume of cyber-attacks and higher losses per incident. Countries like India are at a heightened cyber security risk as companies embrace digital innovation, making data more accessible and its movement easier. Yet, spending on cyber security amongst organizations in India is not appropriate to the rising threats and vulnerabilities. It is critical for companies to focus on defences against human error, identification of cyber risks and applying an integrated approach for risk management with a greater focus on analytics. Only through advances in analytics and technology are we able to give risk managers a clear view of the Return on Investment for all their risk finance options.
Innovations in the Fourth Industrial Revolution means that we need to embrace the rapidly evolving data and technology advances. However, many organizations have yet to adapt. At the same time, the availability and storage of data, processing power and predictive modelling techniques have increased our risk quantification abilities more than tenfold over the last few years in the property and casualty (P&C) risk sphere.