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A look back: Adapting from and responding to evolving risks

Having now entered the second half of 2021, let’s reflect on what we learned — not only from the last six months, but previous years as well. As risk managers, reflection is a key component to ensuring the success of our risk management and claims administration programs moving forward.

Like many of you, I found myself in the risk management industry by happenstance. After beginning my career in the legal field as an attorney, I dove head first into my first role as the lead of global risk management for the Fortune 1 company. With the strong team I had by my side and by maintaining a growth mindset, we accomplished a lot. But there were many unique challenges along the way that defined my experience, developed our team and taught us how to better support our clients.

Lessons throughout history

In 2003, we were coming off what might be described as a hard insurance market. While it started before 2001, it was exacerbated by the events of September 11. Other than a few blips during the 2004 – 2005 hurricanes, we were navigating a relatively soft market with favorable rates, terms and conditions. It was easy during this period for a risk manager to be seen as a “hero.” Most every year we were walking away from renewals with flat or improved rates, plentiful capacity and favorable terms and conditions — even as claims trends were deteriorating across many lines of coverage. During this time, seasoned risk managers continued to exercise their analytical tools to determine risk bearing capacity and efficiency of insurance spend, but we found that year after year, insurance was the most efficient use of capital ­— rather than flexing the financial strength of our balance sheets.

Then came 2017 and with it, some traction toward an upswing in the market, which continued into 2018 and gained steam in 2020. While available insurance capacity existed in the market, underwriters were exercising more discretion in exposing it — requiring higher retentions, decreasing line sizes, increasing rates and imposing exclusions. Some of this change was abrupt, leaving risk managers in a tight position on the eve of renewals. But for those who were paying attention, it was hardly a surprise. All the signs were there. Loss ratios had been unsustainable for years, claim resolutions were becoming increasingly higher fueled by social inflation, and the undeniable impact of climate change was emerging. Not to mention the factors that have continued since then, including wildfires, floods, drought, civil unrest and ransomware attacks. These are just a few that have occurred with higher frequency and severity – not to mention the pandemic! While we don’t have a crystal ball, it’s a safe bet that as rates may stabilize, many of us won’t see market rates decrease significantly during the remainder of our careers. A new normal, perhaps.

So, here we are in the middle of 2021. What should we do to help ensure the success of our risk management programs in years to come? As I ponder how to best address this question, I am reminded of the title of the book by Marshall Goldsmith: What Got You Here Won’t Get You There. Granted, the book has nothing to do with insurance or risk management, but the title is a great banner for risk managers as they assess their programs and the path forward. That message is: your programs may be built on the back of plentiful inexpensive insurance, but that’s not going to work in the foreseeable future. There is a “new normal” among us and as risk managers we must adapt. Who knows, we may find a real opportunity in this challenge.

Stay tuned for part two of this blog for a deep dive into the concepts that risk managers can embrace to ensure success in the years to come.

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