Managing interconnected risks If there is a common thread in the tapestry of global risks, it is uncertainty. The great challenge in managing risk is how to create certainty where little to none exists. For most organizations, risk transfer through insurance plays a critical role, particularly for high-severity exposures. Insurance and reinsurance provide important solutions in protecting value, for both the private and public sectors. The insurance industry’s response to emerging risks has resulted in innovative products that can substantially increase the resiliency of businesses to unexpected financial loss. Fundamental to effective risk management and risk transfer, however, are a clear understanding of known risks and careful planning to cope with the unknown. Advances in risk analytics are helping the insurance industry and businesses to assess and quantify exposures as never before. Yet, the question of whether a claim is covered comes down to the terms and conditions of the insurance contract itself. Thoughtful drafting of policy wordings is crucial to balance the needs of insureds with the financial obligations of their insurers. Further complicating the challenge of managing risks that have global impact is that the nature of such risks spans many markets and jurisdictions, and often requires the participation of multiple insurance companies. Knowledge of international laws and regulations is therefore crucial to managing and underwriting global risks. Failure to grasp and comply with local and national regulations can be costly and create gaps in risk management and insurance programs. It is difficult to envision the current global risk environment reversing course. Economies will not become less interconnected. Global risks and regulations will not reduce in complexity. Doing business and underwriting risks internationally is highly unlikely to become simpler or easier. Acknowledging these dynamics, organizations more than ever must consider expert partners – in risk advisory services, insurance and legal matters. Local perspectives, while offering value, are intrinsically limited. Specialist expertise, providing global perspectives, is far more valuable to businesses and insurers in helping them to achieve their goals.
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