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ESG REGULATORY RISK GOT YOUR ATTENTION? DON’T OVERLOOK ENVIRONMENTAL RISKS

A mere 9% of businesses rank environmental as the top risk in 2022. What that
means for the industry moving forward.
By: Gregory DL Morris | December 19, 2021
Topics: Climate Change | Critical Risks | Environmental | Insurance Industry |
Risk Management



Businesses across all segments of the economy may be focusing much of their
effort on the interconnected legal, reputational and regulatory risks of
compliance rather than actively addressing environmental risk.

That was the surprising finding from a recent analysis by specialist insurer
Beazley. The underwriter found that only 12% of business leaders across 10
industry sectors in the UK and the U.S. rank environmental concerns — including
pandemic, climate change, environmental damage, food security and energy
transition — as their top risk category in 2021, falling to just 9% looking
forward to 2022.



The “Spotlight on Environmental Risks” is the latest in Beazley’s Risk &
Resilience series, which compares business leaders’ attitudes to different
categories of risk and assesses perceptions of resilience.


LOOKING INTO ENVIRONMENTAL ATTITUDES ACROSS INDUSTRIES

“The discussions and announcements at the recent COP26 summit demonstrate the
increasing stakeholder, governmental and regulatory pressure that businesses now
face to align their operational practices to the fast-changing environmental
agenda,” said Chris Illman, head of responsible business for Beazley.

Chris Illman, head of responsible business, Beazley

“Failure to do this will result in increased legal, reputational and regulatory
risks. So it is surprising and concerning that our research reveals that
environmental risks ranked so low on business leaders’ list of concerns.”

Environmental risk mitigation presents a significant challenge, Illman stressed.



“The complexity and interconnectivity of the risks have the potential to
generate claims that straddle traditional areas, from pollution and
environmental damage, through new areas of risk such as greenwashing and
reputation damage. But they also represent an opportunity for specialty insurers
like Beazley to work with clients to go beyond pure risk transfer to improve
management and mitigation of risks to minimize the likelihood of a loss event.”

In January and February 2021, Beazley commissioned research company Opinion
Matters to survey the opinions of more than 1,000 business leaders and insurance
buyers of businesses based in the UK and U.S. with international operations.

With a minimum of 40 respondents per country per industry sector, respondents
represented businesses operating in health care and life sciences;
manufacturing; financial and professional services; energy, mining, and
utilities; public sector and education; retail, wholesale, food and beverage;
real estate; construction; hospitality, entertainment, and leisure; technology,
media, and telecommunications; marine; and warehousing.

Of the firms surveyed in both the U.S. and UK, there was an equal split of
respondents across company sizes of: $250,000 – $1 million; $1,000,001 – $10
million; $10,000,001 – $100 million; $100,000,001 – $1 billion; more than $1
billion.

Beazley plc is the parent company of specialist insurance businesses with
operations in Europe, United States, Canada, Latin America and Asia. Beazley
manages six Lloyd’s syndicates and, in 2020, underwrote gross premiums worldwide
of $3.6 billion.

Not only were environmental risks cited by a low percentage, the citations
actually dropped farther out in time. Given that all of the science shows
climate change worsening, it is especially surprising that environmental risks
were considered even lower in 12 months’ time than today.



“The research records the predictions of businesses looking forward into 2022,”
Illman noted. “We believe that rather than address the big picture of
environmental concerns, businesses are focusing on near-term risks, which are
within their control, with 18% ranking political and regulatory risks their top
concern in 2021. Given the pace and scale of environmental change during 2021,
and the measures announced at COP26, it is our hope that, despite current
expectations, environmental risks will rise in corporate agendas over the coming
year.”

Another factor is that despite pandemic and climate change dominating the news,
executives appear to think of this category of global systemic risks as an
externality — something that does not affect their bottom line.

“Our research revealed businesses to be primarily focused on near-term
environmental risks,” Illman explained. “That is focused around compliance with
regulation and addressing stakeholders’ ESG expectations. There are clear
actions that can be taken on those issues, so it is unsurprising that this is a
natural area on which to focus initial efforts.”




WHERE THE UNDERWRITERS STAND

Underwriters have an active role as well.

Concrete actions to address other risks often earn insureds lower premiums.

“The relationship between insurer [and insured] needs to evolve more quickly
into one that is more strategic,” said Illman, “based on partnerships to develop
effective risk management to address the challenge of climate change.”

Shifting back to owners, part of the challenge in addressing environmental risk
is how different it is manifest for various business sectors.

“It is clear from the research that individual sectors face differing levels of
risk and have varying levels of resilience to environmental risk,” said Illman.

“For instance our research highlighted that nearly half (49%) of energy and
utilities companies feel resilient in the face of environmental risks compared
to just 28% of retail and food and drinks businesses. Therefore insurance needs
to reflect the relative threat that each sector faces and the risk management
work individual businesses within each sector have undertaken to address it.” &

Gregory DL Morris is an independent business journalist currently based in New
York with 25 years’ experience in industry, energy, finance and transportation.
He can be reached at riskletters@theinstitutes.org.





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HOW AUTOMATION IS ENABLING ACTUARIES TO DELIVER BETTER VALUE

Technology has transformed the way companies operate due to the COVID-19
pandemic, with automation being deployed to carry out mundane tasks, allowing
actuaries to focus on analyzing data in greater detail and making critical
decisions.
By: WTW | November 15, 2021

Technology is fundamentally changing the way that actuaries work and the results
they can achieve for their companies.

This drive towards digital innovation has been accelerated by the COVID-19
crisis and is only going to continue on an upward trajectory.

The pandemic has prompted firms to change their business models and invest more
heavily in digital technology, in the same way that regulation such as Solvency
II has enabled organizations to modernize their processes and procedures.

“When the pandemic struck, everyone had to quickly figure out new and effective
ways of remote working,” said Joe Milicia, global proposition leader, Business
Process Excellence at Willis Towers Watson. “Those that made the early
investment in innovation and automation were way ahead of the curve.”

COVID-19 has also created greater uncertainty among companies about everything
from the return to the office and economic recovery to risks, premiums and
claims.

Additionally, the pandemic poses a significant challenge to actuaries due to a
lack of representative historical data upon which to base forecasts.

This means that having access to accurate and up-to-date data is key for better
decision-making, navigating the uncertainty and adding value to the bottom line.
It also requires actuaries to use non-traditional techniques, and different
visualization tools and data to make their forecasts.

“There has been a greater desire to change the way we work, both out of
necessity and being equipped with the right framework and tools to do so,” said
Jamie Mackay, director at Willis Towers Watson. “The need for new techniques and
the desire to leverage more granular claims data require different technologies
outside of core loss reserving capabilities.”


THE ADVANTAGES OF AUTOMATION

Joe Milicia, Global Proposition Leader, Business Process Excellence, Willis
Towers Watson

The most significant change for actuaries over the last 18 months has
undoubtedly been an increased adoption of automation to accelerate and govern
processes and enable additional value-added analysis.

The biggest barrier to adopting new approaches and methods for actuaries has
historically been a lack of time to properly test and implement.

But automation has enabled actuarial teams to overcome this by performing the
manual and repetitive tasks such as cleaning, validating and loading the data;
and generating results and reports. This frees teams up to focus on more
critical work like strategic planning and decision-making.

That need is reflected in a recent Willis Towers Watson survey, which found that
84 percent of the chief and reserving actuaries quizzed said they didn’t have
enough time for detailed, value-added analysis of their data, while the sheer
volume of tasks they are required to perform continues to mount.

Technology has afforded actuaries time to analyze the data in a more timely and
detailed manner, and spot key trends and patterns. Additionally, it reduces the
chance of human error when data is being handled or passed between different
teams and departments.

“The overall data process becomes more efficient, streamlined, and better
controlled and governed,” said Milicia. “In that way, risk and the opportunity
for things to go wrong are being reduced or eliminated altogether.”

Where this technology has brought the most value, however, is in data
visualization to provide increased insight across complex analyses and better
explain the drivers of results. This also leads to greater scope for actuaries
to communicate results more effectively to the C-suite.

To this end, it can also be used to run the same tests auditors use and provide
them with the results rather than having to sift through all the data and
reconcile it.

“Clients have significantly reduced the amount of time spent trying to explain
their assumptions,” said Milicia. “Now, instead of having to plow through a
1,000-page report, they can use intuitive management information to tell their
story much more powerfully.”


NEW SOLUTIONS FOR TECHNOLOGY INTEGRATION

Jamie Mackay, Director, Willis Towers Watson

As with any new technology, however, there are challenges involved in its
implementation, including integration with legacy systems owned by various parts
of the organization that all need to be orchestrated to work harmoniously
together.

“There are a host of different considerations that need to be taken into
account,” said Mackay. “How do you get it to do what it’s designed to do, most
effectively? Where is human intervention required and what do you do if
something goes wrong? We spend more time with our clients planning what the
solution should do when the unexpected occurs as we spend planning for what
should happen when processes proceed smoothly.”

Firms also need to have dedicated experts in place, whose primary role is to
implement and manage the technology, as well as the right tools and a culture
that empowers teams and individuals to take control and use it to full effect.

“The implementation of any new technology like this will fundamentally change
the way that people work,” said Milicia. “So, companies need to ensure they have
full buy-in from all key stakeholders from the start to ensure appropriate
design and that the new processes are embraced.”

Willis Towers Watson has established two core products for actuaries, both of
which have many synergies and can integrate seamlessly with each other.

ResQ is the industry-leading loss reserving platform. It uses modeling and
reserving methods to structure, access and manage data sets, all within a
governed framework. Among ResQ’s key benefits is access to a wide range of best
practice claim projection, adjustment, result selection and combination methods.

The technology improves understanding of reserve estimate variability, reduces
human error and provides support for Sarbanes-Oxley and Solvency II compliant
processes.

“ResQ is laser-focused on providing actuaries with the right tools for the job
when they need them,” said Mackay. “It also provides the diagnostics and
graphics to inform critical decisions and communicate the impact of their
predictions to the relevant stakeholders.”

“They also know what they are looking at is the most up-to-date version of the
results. And they can have confidence that all of the models used have been
built to the highest specification.”

Unify is an enterprise-risk and actuarial systems integration, automation and
governance platform that wraps around a company’s existing technologies and
processes. The platform connects the tools and technologies within an
organization’s ecosystem, securely delivering cleansed, validated data and
enabling more efficient and more effective business processes.

Using automation, Unify also enables processes to be completed more quickly,
with fewer human resources, delivering time and cost savings, while providing
greater transparency and consistency of results.

Other key features include the automatic generation of audit trails tailored to
a company’s requirements, and on-demand computing power and 24/7 availability,
which means calculations are executed quicker and more efficiently.

“Our domain knowledge and expertise are deeply embedded within the technology,”
said Milicia. “That means it can be quickly leveraged to deliver value to
clients. Further, utilizing tools designed for insurance professionals moves
automation out of the IT realm and enables business users to own the process.”

“Full governance and auditability are ingrained in Unify and cannot be bypassed,
which is essential for reserving and financial reporting. That saves a
significant amount of time spent on tasks such as creating and managing audit
trails, tracking reviews and approvals and managing data versioning and
retention.”

To learn more about Willis Towers Watson’s ResQ and Unify software, visit
https://www.willistowerswatson.com/resq and
https://www.willistowerswatson.com/unify.






This article was produced by the R&I Brand Studio, a unit of the advertising
department of Risk & Insurance, in collaboration with Willis Towers Watson. The
editorial staff of Risk & Insurance had no role in its preparation.

WTW’s Insurance Consulting and Technology business is a leading provider of
award-winning software and advisory services for the insurance industry.







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9 RISKS BEING HEIGHTENED BY THE GROWING LABOR SHORTAGE

With more than 2 million job openings in the U.S. alone, the labor shortage is
causing more risks for businesses.
By: R&I Editorial Team | February 1, 2022


The R&I Editorial Team can be reached at riskletters@theinstitutes.org.





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