Category Risk Management

What the Pandemic Taught us

24 November 2020 Craig Kent, Head of Risk Management at Aon South Africa
Craig Kent, Head of Risk Management at Aon South Africa

Craig Kent, Head of Risk Management at Aon South Africa

The world is still reeling from the enormity of the impact of the COVID-19 pandemic on our seemingly ‘normal’ operations and lives.

For businesses, there have been significant disruptions in how strategic, operational and external risks are viewed and handled, many of which have been amplified by the influence of the pandemic. No matter which way you approach it, COVID-19 has fundamentally changed the parameters for business of what constitutes success in the future, and how risks will be measured and mitigated.

What is very clear is that what leaders and risk managers may have thought are likely risks to be faced in their business operations has been given a big dose of reality and lousy-tasting medicine. Without discounting the known and ‘typical’ business risks - these were with us before the pandemic started and will continue to be relevant – however their rating on our risk registers and their influence over our medium to long-term plans has very likely changed. The realisation that no risk is too far-fetched or unlikely to occur is rapidly settling in.

Winston Churchill once said: “Never let a good crisis go to waste”. There is much correlation with where Churchill found himself and indeed the world as they emerged from the devastation of World War II, and how we navigate our way forward as we emerge from this globally synchronous pandemic disaster.

A business response to risk should be based on a solid, resilient and flexible risk framework that is supported from the top to the bottom. The success of the reaction process to a perceived or imminent risk hinges firstly on how informed the risk framework is in terms of operational, strategic and financial factors related to the business, which requires reliable data in real time; and secondly requires a structure that efficiently interrogates and interprets this data once placed in the framework for processing and appropriate response.

Well-formulated risk programs that complement the business structure and plans underpin the information required for the board to make timeous and informed decisions on both known and unknown exposures. This is where risk transfer starts to play a significant role as the business identifies what risks it is comfortable facing on its own through self-insurance tools, and what risks need to be transferred to an insurer. It’s a delicate balance that requires serious discussion with expert brokers and risk advisors in the field.

COVID-19 lessons for long-term risk management and strategic planning
Going into 2021, it is wise to interrogate the many important lessons learned in 2020, and how these will influence short, medium and long-term business planning in the face of an unprecedented crisis. Aon unpacks the key lessons and factors to be considered as businesses move into the recovery and beyond phase of the current pandemic.

Lesson #1: Legal and compliance
• Changes to ongoing transactions and construction Force Majeur (FM) and Material Adverse Change (MAC) clauses in contracts should by now have materialised, leaving the business to navigate and amend future approaches.
• Occupational Health and Safety (OHS) Act – what was the demonstrated response to commitment of health, safety and wellness of staff, tenants and the community and to what extent emergency measures adopted during the pandemic become permanent, and to what cost versus benefit?
• Environmentally-friendly approach to cleaner, greener and smarter properties – revise all Capex plans to dovetail into a centralised risk and procurement approach that is eco-friendly.

Lesson #2: Stakeholder disclosures and guidance
• The impact of COVID-19 is likely to be long-term, so businesses need to determine how to communicate the impact of Covid-19 on upcoming earnings through managing expectations relating to share buy-backs and dividends.

Lesson #3: Strikes, riots, civil commotion, malicious damage
• The socio-economic implications of COVID-19 are significant and far-reaching, creating complex security challenges in the long-term. Organisations should consider whether their operations have the potential to be affected by widespread protest action and civil unrest, review the potential impacts and how their insurance programmes will respond.

Lesson #4: Cost management / reductions
• If there is a need for discernible cost reductions, identify where and to what extent, and what the implications are of such reductions across the business.
• Re-appraise Capex expenditure by evaluating non-core assets, lease agreements and planned developments in addition to interrogating associated risk factors.

Lesson # 5: Relief, insurance and alternate risk transfer
• Identify possible government relief funds to be accessed.
• Investigate potential business interruption claims and adjust the insurance portfolio’s future outlook.
• Identify alternate risk transfer methods available in the market, allowing the business to take ownership of smaller risks with an overarching insurance band that will respond if larger losses are triggered.

Lesson #6: Liquidity
The pandemic intensified the negative financial impact on businesses, with more and more organisations failing to meet their financial obligations, filing for business rescue proceedings or liquidation. Ensuring your business continuity is crucial and one means of achieving that goal is to protect your business against defaulting debtors with trade credit insurance.

Lesson #7: Mergers and Acquisitions
• Identify possible windows of opportunity and inherent risk factors as the market is likely to condense and consolidate to stave off the effects of a shrinking economy.

Lesson #8: Cyber Risk
• If there wasn’t a big cyber exposure before the pandemic, there may very well be now in the rapid shift from ‘brick to click’ and remote working which are likely to be ongoing trends for many businesses.
• The pandemic has fundamentally changed the way we conduct business in respect of mobile, cloud and remote working and this has significant cyber risk implications that need astute planning, risk mitigation and business continuity planning.

Lesson #9: Changing property market
• Rental space and changes to occupancy rate classes - Identify property rentals or triple Nett lease exposures where the space is utilised for operations other than intended use of the space – this can have a material impact on liability exposures as far as health & safety and due diligence matters are concerned.
• Rent collections and growth – Many businesses are downsizing amid the work from home movement in addition to businesses closing their doors, fundamentally impacting the property rental, development and construction markets.
• Land Rights – With ongoing uncertainty relating to land rights in RSA, identify the potential of properties exposed to this risk and a suitable course of action.

Lesson #10: Failure to innovate and meet customer needs
• Identified as one of the top 10 risks facing businesses in Aon’s 2019 Global Risk Management Survey, this risk took centre stage during 2020, focusing an uncomfortable spotlight on business agility and ability to digitise, change business models and offer readily available alternative products and services. Is your business ready for 2021?

“The only certainty is that the future is uncertain” has been the clarion call for 2020, and with 2021 promising its fair share of uncertainty, it is crucial to take what we have learned from the pandemic and apply it to our long-term risk management and strategic planning. The world is a very different place in so many fundamental ways. This makes it crucial to interrogate your risks and to put a flexible, robust and adaptable risk framework in place - a task best undertaken with an expert broker and risk advisor by your side.

It is here where Aon’s data-driven insights provide value and opportunity. As specialists in risk mitigation, risk and business continuity management, we implicitly understand the need to always stay ahead of the curve. COVID-19 – and future pandemic risks - will without a doubt continue to test every organisation’s resilience planning in future and there is still much unchartered water to cross. What is not unchartered is our response to it. It is here where Aon’s fact-based insights, processes, skilled people and technology platforms ensure optimal decision making and functionality to provide you with a solutions-based management approach to insurance and advice, combined with a risk management strategy to help you protect your people, assets and brand, now and into the future with certainty and stability.


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