Insurers must find ways to help cover intangible assets amid fast change

The boards and leadership teams of businesses are faced with an unprecedented level of change and are more accountable than ever. This represents an opportunity for risk managers and risk advisers to create new solutions to allow leaders to make better decisions.

That was one of the key points made by Michelle Mason, managing director, Aon Commercial Risk Solutions, speaking in a panel discussion called ‘New World, New Solutions’ chaired by broadcaster and journalist Cathy Newman at the annual Airmic conference yesterday (June 4).

“These are very exciting times for our industry. Leadership teams are faced with an unprecedented amount of change transcending regulation, technology, intense competition in business and political and economic uncertainty,” Mason said.

“Boards have increased accountability and they are dealing with more informed and empowered stakeholders who can take action. It makes for a very complex risk environment but also means an opportunity for our industry to create new solutions to help them make better decisions.”

Newman introduced the session by describing the challenges the industry faces. “The pace of change is quite dizzying. The future can look daunting, but this new world does bring new opportunities,” she said.

“The very technology which poses a threat also opens up new business horizons. How do you insure a world where value is less in bricks and mortar and more in less tangible assets? And then there are the complexities of geopolitical risk.

“What are the known unknowns, and the unknown unknowns? What types of insurance might protect us all in the future?”

Mason continued: “Such is the interconnectedness and complexity of risk, that boards must examine it at an enterprise level within organisations.

“Risks no longer exist in silos and it is important that boards ensure their governance structures knit together, allowing the board to understand the risk and make better decisions.”

She went on to stress that boards now hold a greater level of personal liability and there is a growing need for leaders to better understand what their intangible assets are, and how to protect them.

“This is another area where governance is lacking,” Mason said. “If businesses do not innovate they die, yet many businesses remain focused on tangible assets as opposed to intangible ones.”

She explained that in many of the biggest companies more than 80 percent of their value is driven by intangible assets. “How is this assessed and quantified? This is a changing area in terms of accountability.”

Joint effort

Mark Roberts, property/casualty chief underwriting officer, Chubb UK & Ireland, made the point that the key to solving many of these challenges will be working together.

“We need to ensure we understand the exposure and have products suited to that. The key to achieving that will be collaboration,” Roberts said.

He went on to list a number of risks—including reputational risk, cyber and IP theft—that he would categorise as emerging risks. While coverages were starting to emerge for these risks, the insurance industry was at the start of a journey.

“All of these push the boundaries of the traditional insurance policy which has always been based on more tangible things,” he said.

“With the advancement of technology and the growth of data and how it is used, we are now entering a different risk landscape. We do have some risk solutions at the moment, but it is very much a journey.”

Roberts offered the example of a traditional manufacturing company, the risks it might face and the policies it might buy to cover them. He then compared this with a modern manufacturing company which is heavily invested and reliant on technology, making it vulnerable to a malware attack.

In such an instance, he said, the latter company could end up claiming on multiple insurance policies including property damage, business interruption, cyber and maybe a product recall casualty product.

“The reality is that each of these might be with a different carrier, and have very different limits and exclusions,” he explained.

“That is a long way from what the insured needs, and insurers, brokers and risk managers need to go on a journey together to address this. We need to listen to what customers want and fill in these cracks. We have some solutions already, but a much more holistic approach is needed.”

Risks are connected

John Ludlow, the chief executive of Airmic, said the responsibility for protecting intangible assets better should start with the companies themselves. They need to get cleverer at mapping and understanding their assets and managing them more efficiently.

“We have all these new assets that are underpinning companies’ valuations, but we are not managing them. We know how to manage a property—what the hazards and potential claims are.

“We need to learn to do the same with these intangible assets,” Ludlow said. He agreed that collaboration will be the key to this.

Nicolas Aubert, who leads Great Britain at Willis Towers Watson, moved the discussion in the direction of geopolitical risk. He said that while it is not a new phenomenon, in the past it was large, multinational companies that tended to be exposed to this risk—but this has changed.

“There is now an understanding that no matter the size and scope of a company, it is exposed in some way to geopolitical risk,” Aubert said.

“Its scope is now wider and more diverse. It has evolved. Even if you are running a purely domestic business, as Brexit has proved, you can be exposed to political risk.”

He added that these risks are more connected than in the past to other risks.

“Risk managers need to be talking to their CEOs and other parts of their companies to ensure they understand how risks are connected. Companies need a risk framework to wrap around political and economic risks in a way that takes into account how everything is linked together.”

Cécile Fresneau, executive director, UK, QBE European operations, discussed the many opportunities the use of data will offer insurers—alongside many challenges.

“There is huge potential in how we use big data but also many challenges and work to be done around the quality and how it is used,” she said.