Prioritising risk and resilience in a volatile world

In a wide-ranging interview with Jota Shohtoku, executive vice president, head of Asia Pacific insurance, and Paul Houston, head of risk management, global markets at Allied World, we discuss risk management priorities for 2021 and how to navigate the unintended consequences of Covid-19.

There is no getting away from the significant impact that Covid-19 has had on the risk landscape within Asia Pacific, but that has not reduced the threat posed by the myriad of other challenges in the region that businesses and risk managers must contend with.

Climate change, natural disasters, political upheaval and intellectual property concerns are just some of the issues that have impacted businesses in Asia Pacific, Allied World’s Jota Shohtoku and Paul Houston told The Insurer.

Asia Pacific is a major manufacturing hub, sending products all over the world. And the pandemic, as Paul Houston explained, has impacted the region’s role in the global supply chain as warehouses now hold more stock as a buffer against any future supply chain disruptions.

From an insurance perspective, holding more stock increases the sums insured and potential size of any loss.

Companies are looking to shorten their supply chains to help minimise potential disruptions, , and this creates a whole variety of new exposures that clients, and insurers such as Allied World, now have to consider.

“Covid has highlighted the need for supply chain visibility, so, for example, a car manufacturer should be aware of which countries and suppliers it gets its component parts from and how reliant it is on a particular company, or a particular country.”

“Companies are increasingly reducing dependency on any one particular company or r country, because if something goes wrong and the borders close then their supply is disrupted.

This shift to diversification will also present an opportunity to countries like Thailand, Vietnam and Laos to step up and provide an alternative to the manufacturing giant that is China, Houston noted.

The shift to home working

According to Shohtoku, Allied World’s executive vice president, head of Asia Pacific, the pandemic has also raised another important risk consideration – that of employees working from home and the risks associated with the shift in the work environment.

For Shohtoku, some of the key considerations for companies whose employees are increasingly working from home are around employers’ liability and workers’ compensation. On the latter, he said there are “difficult challenges” around how and where people were injured.

“If [an employee is] working from home, is it really during the course of their employment that they were injured?” he questioned.

Companies around the world have adapted to the various lockdown restrictions by embracing technology, with video calls replacing face-to-face interactions, however with vaccines now being distributed there is optimism that global travel will once again become more likely. But as Shohtoku noted, that will also bring challenges.

“What is that risk framework when it comes to allowing workers to get back on the road to travel to places?

“Is it going to go back to business as usual or will there be more of a rigorous approval process in order to travel for business purposes?” Shohtoku said.

Covid just the latest risk consideration

While the pandemic has presented a host of new risks and issues to consider, Asia Pacific was as a region already exposed to a multitude of perils before Covid-19 and those have not gone away.

“Taiwan, Japan, Indonesia, the Philippines, Australia – they’ve all got significant natural catastrophe potential. Climate change is making a difference when you look at things like the bushfires that happened recently in Australia. I believe we’ll see a lot more natural catastrophe events happening across the region,” Houston added.

And away from nat cat exposure, there is also the threat posed by political instability, with the recent coup in Myanmar. another example of the risks within Asia Pacific, although Houston was quick to highlight that “every country in the world has political risk”, albeit some have more than others.

Risk profiles vary by country

Asia Pacific is not one homogenous region either, Houston and Shohtoku reiterated.

“It’s really easy for people sitting outside of the region to put Asia Pacific into a blob and to say ‘that’s Asia’ and ‘that’s Pacific’,” Shohtoku said.

“Every country has a different risk profile,” Houston added.

Issues such as nat cat risk and political instability vary greatly from one country to another, and companies located in one can have a completely different view of risk to those in another, explained Shohtoku.

“Even if you looked across a small area of Asia, say Vietnam, Thailand and Myanmar, they clearly all have different languages,” Shohtoku said.

“From a risk point of view, doing business across languages isn’t actually just about ensuring we’re communicating effectively – what we see in fact is significant differences about how a client views risk culture [and] safety culture within their organisation,” Shohtoku added.

“You really have to have a good understanding of the risks and exposure in different countries and regions, and to be clear as to how this could impact the supply chain.” said Houston.

And that is key to how Allied World supports clients, Houston added.

“My team is truly global and have experience working across different countries, and industries, and most of our risk engineers have spent decades in industry prior to moving into insurance. This means they’re well equipped to make assessments of one country against another,” Houston outlined.

“We have local underwriters from the Philippines, Korea, Japan, Taiwan and other countries within the region, complementing our teams in Singapore, Hong Kong and Australia.This diversity is important given the risk profile variations in Asia Pacific.” Shohtoku said.

“While of course there are similarities, individual countries within the region present their own risk maps and it is vital the right experience, local language and knowledge centre is applied to our clients based in these countries, so we know how to approach the risks,” he explained.

“For example, the risks of natural disasters are much higher in places like Japan and the Philippines and require a greater focus on these pressure points, but in other parts of Asia, say Malaysia and Indonesia, we are faced with rapidly growing economies, and that comes with its own sets of challenges,” Shohtoku continued.

A view that’s critical to underwriting

Underwriters across the Allied World group are supported by our Risk Management team, whose insight and advice are utilised to not only to improve clients’ understanding of the exposures they face and risk prevention more generally, but also in the underwriting process itself. Furthermore, should a loss occur, the risk management team can quickly be deployed to minimise that loss by putting practical strategies in place to ensure any business interruption or down time is minimised.

“Paul’s team is part and parcel of our underwriting process,” said Shohtoku. “We utilise their judgement as more of an underwriting check and that feedback continues to exist even post-writing that business,” he explained.

For example, Houston’s team of risk engineers will suggest how clients’ exposures could be mitigated.,

Providing that advice and support is a key element of the Allied World offering, and we look to work together with clients to improve their risk profile for mutual benefit.

Working closely across both Risk and Finance functions

One of the key questions for clients, Shohtoku explained, is asking where risk management sits in a company “because risk is a critical component of any company’s operations”.

Companies where the risk manager and the CFO “are very much on the same page” are often those more willing to embrace risk management, Shohtoku said.

“When we go into a meeting and we’re speaking to [the risk manager who] isn’t necessarily speaking to the CFO regularly, or doesn’t get that support from a resource standpoint, that’s where we find a disconnect,” he said.

Arguably one of the company’s biggest challenges, Shohtoku said, is trying to get the risk manager and CFO to align on a strategic, proactive approach to risk management and risk transfer so that the benefit of the recommendations and advice Houston and his team provide can be aligned at both a financial and operational level.

“The CFO may not know the full picture and therefore they’re sitting around paying $1mn [in premium] when they could be paying $800,000 and spending $150,000 on some risk management measures,” said Shohtoku.

While the advice that Houston and his team provide would ideally be implemented, there will always be restrictions around capital expenditure, especially when it is non-essential.

But as Houston explained, his team is “quite happy to just chat with clients” about their risk management strategy

“When I go to sites, I do my job, but I also end up having a chat with the location manager about the bigger, broader aspects of risk management including how to identify risks, how to align frequency and severity factors next to those risks and come up with a plan to make improvements.

A region with tremendous opportunity

Given Allied World’s wide-ranging scope in the Asia Pacific region, one of the key differences the insurer can bring to its client service is its ability to share best practices from a client’s own competitors, or a similar company, facing similar issues.

“It’s not just about just getting capacity and financing the risk via insurance; it’s more than that. It’s about working with the client and trying to help them,” Houston added.

ion.