While conventional insurances protect against “the devil you know”, Edge promotes an approach to risk which also accounts for “the devil you don’t”. We challenge our clients to turn their view of their risk exposure upside down and consider what a catastrophic event might look like, not from a grounding or an engine breakdown but from an external event such as a pandemic. This is an inherently difficult exercise, and circular in the sense that both the premise and the conclusion is that the answer is unknown. However, very recent history provides several examples of such events, with COVID-19 as the most prominent one. So how can you protect yourself against the unknown unknown?
Our solutions portfolio includes products built for this purpose. Trade Disruption Insurance and Contract Termination Insurance are examples of the covers which we tailor to make as wide as the market permits. Examples of perils which has been included in their scope of cover in the past are quarantines and epidemics, which would have been very valuable to shipowners in the past months. This protection was available at a low cost, but is not anymore. We recognize how easy it is to ignore these risks, but time and again we see examples of losses that could have been insured.
In line with our thinking, Gard’s Chief Risk Officer Torunn Biller White gave a recent interview explaining Gard’s internal risk management approach, which provides excellent insight into their processes and considerations. Her reflections should be useful to anyone in risk management, and we recommend finding inspiration in the following reading.
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Gard Chief Risk Officer talks about managing risk, identifying emerging risks
Torunn Biller White, Gard Chief Risk Officer, has given an interview expressing her thoughts as to how the insurer manages risks and identifies emerging risks.
White said that her Risk Management function was an assigned role in ensuring that all financial and non-financial risks are identified, assessed, managed, monitored and reported. Gard uses its own risk and capital model to compute the capital requirements for the group and all insurance entities.
It now has approval from Finanstilsynet (the Financial and Supervisory Authority of Norway) to use its internal model for calculating regulatory capital for insurance risk and market risk. “This was a major recognition of the internal model team and a great achievement for Gard”, White said.
As a global company Gard is exposed to different regulations all over the world. The compliance team “puts a lot of effort in ensuring that we manage compliance risk through regular risk assessments, in-house training and communication with Gard employees and Board members.”
The team also has responsibility for identifying new, emerging risks that might hit Gard, and communicating this to the senior management and the Board.
Every year the team tries to identify emerging risks. White said that emerging risks could be risks that were considered immaterial at the time but which could develop into major risks; risks where there was a lack of history, or where there was a low probability of materializing.
In 2019 the team identified about 40 different scenarios across four axes (Environmental, Geopolitical, Socio-economical and Technological) and asked the Board and Gard managers to rank them. It then put together working groups from different functions and locations that were asked to recommend some further actions. Some recommendations were for immediate implementation. Other recommended actions are subject to “triggers” to account for future developments. These triggers are monitored by White’s team.
The top three topics that were identified last autumn were:
At number one, the “Cyber-attacks Towards Ships and Shipowners” project was looking into the direct and indirect effects of a spoofing attack, ransomware and attacks on the operational technology onboard ships.
Next came the “Energy Transitions” project, which focused on the impact on Gard as the world transitions towards more renewables.
Finally, the “Clash of the Titans”, project is looking at the increasing rivalry between USA and China and the consequences for sanction regimes, trade patterns and local vs. regional partnerships.
There are more projects in the pipeline. Next the risk management team will look at international laws of shipping. Then it will look at storms and hurricanes as a consequence of climate change, and then it will analyze the increased tension in the Middle East.
White said that “a benefit of this way of approaching these complex issues is that we develop a methodology for longer term thinking about risk. For example – energy transition is a process that will take years, even decades. It is essential to be prepared and we need to start now to build competence to face the future.”
White revealed that Gard had a pandemic scenario amongst the 40 scenarios that it identified last year, but said that it did not make it to the 12 scenarios on the shortlist. “We did not see it coming in the way it hit us this year!”, she said.
White revealed that Gard picked up early on that something big was about to happen – first in Hong Kong and later in Singapore where we have offices. “We understood quite quickly that this could affect Gard’s many operations, so I put together a task force on business operations in early February. The task force consists of members from claims, underwriting, loss prevention, investments, HR and communications. The group meets regularly, shares information and solves cross-functional issues as they arise. In the first meeting we drew a risk map, which we have used as our reference in the subsequent meetings. The risk map has of course changed over time as the situation developed.”
The CFO created a similar task force for finance and other task forces were created across Gard’s other business areas, such as communications and human resources. Frequent information to Gard employees has been particularly important over this period, she said.
The COVID-19 crisis accelerated the shift to digital communication as all Gard employees transitioned to working from home. White said that the technology department managed to turn around really quickly and provided home office equipment to all employees in a matter of days. “The whole company was forced to work in new ways and responded impressively to new tools and ways of communicating”, White said.
“I feel that the frequent virtual meetings and conversations across the globe actually brought us closer together. We have had board meetings using Microsoft Teams, and last week we had our first ever virtual meeting with the Norwegian Financial Authorities from our own separate living rooms!”
The risk picture changed substantially over this period. An expanded remote workforce introduced heightened vulnerability to cyber-crime. Security standards in a home-office environment are generally less robust than the typical office environment. Gard was made aware of a general uptick in cyber-attacks taking advantage of the pandemic. Cyber risk was early on identified as an increased risk and Gard therefore increased the attention to it on many levels. This resulted in a cyber awareness week, with focus on employee awareness training.
http://www.gard.no/web/updates/content/29769617/navigating-new-and-emerging-risk-an-interview-with-gards-chief-risk-officer
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