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Risk in a dynamic risk environment

01 August 2016 Sedick Isaacs, Zurich South Africa

Risk management has certain basic elements that include identification, evaluation and ultimately mitigation of risk, which intermediaries and risk managers use as a basis when dealing with their customer’s risks.

As technology becomes more sophisticated, accordingly, risk management and transfer of risk needs to advance.

Identifying and assessing risk

While there are various types of risk management techniques and measures, insurance is the most important as it protects against losses when risk management has failed. This places a huge responsibility on the intermediary in terms of identifying the customers’ specific risk profile, performing an in-depth needs analysis and then providing the appropriate advice.

It is also incumbent upon the insurance sector to develop better methods of assessing risk and providing adequate protection for the customers’ assets.

Advising on emerging trends

The current trends show an unprecedented increase in cyber fraud, corruption and employee fraud. These are only a few examples of the type of risks businesses and individuals face – and both insurers and intermediaries need to stay informed about such trends and the potential impact on customers.

With intermediaries at the centre of customer relationships, their role is critical in advising on emerging and growing risks and trends, what covers are required and how best to mitigate the level of risk by applying sound risk management programmes. The role of a risk engineer becomes invaluable in being able to offer professional guidance on risk mitigation, and intermediaries are encouraged to utilise the services of risk engineers who tend to work for insurers.

As customers generally deal with intermediaries in the first instance, the intermediary needs to be in a position to offer risk management advice and techniques to the customer in a way that allows the customer to firstly make an informed decision, and secondly to understand what action he or she can take to reduce some of the risks, thereby assisting in the partnership of managing the ultimate transfer of risk.

What could be done differently?

Pre-loss and post-loss risk management and consultancy, specifically in terms of managing and mitigating risk, is critical to consider.

One of the key risks facing most businesses today relates to brand management and reputation. Therefore, the intermediary must have a basic understanding of how the business could be affected in the event of any fortuitous event and what steps would be needed to immediately reduce further financial loss and reputational damage.

Further recording of loss data is the equal responsibility of the insurer and intermediary as this historical information is important in providing for future risk improvement techniques and mitigation.

Again, if the broker does not have these expert skills, Risk Engineers can be called upon to assist and guide.

The insurance industry needs to adopt a more comprehensive approach to risk management if they want to remain relevant in a dynamic risk environment. Key considerations are to engage in training that helps acquire the requisite skills and partnering with other experts in the risk management field (such as risk engineers, risk managers, communication specialists, legal advisers, etc.) to deliver the best benefit to the customer.

As an example, insurers could consider personal applications that incorporate home telematics (similar to that used in Italy), which integrates technology with sensory devices in the home to assist with risk management and risk exposure.

In order to advise customers in respect of risk management, intermediaries need to be aware of emerging risks in drone utilisation and sectors such as renewable energy, financial services and major sporting events.

This may require a different approach to risk management given the growing complexity of these risks. Ultimately, the consumer market, being price sensitive, will have to find the right balance between management of risks, improved methods of risk management and price optimisation relative to risk.

Quick Polls

QUESTION

We have watched with interest as each of the country’s large life insurers report their 2021 life claims statistics, with soaring claims and claims values. That got us thinking: how do the big life insurers compare against one another, from an IFA perspective?

ANSWER

An insurer is an insurer is an insurer
All are excellent: would not deal with them otherwise
There is one insurance brand that stands out for me
Tied agent: but my brand is the best out there
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