The rapid spread of Covid-19 and the uncertainty that it introduced has highlighted the importance of risk management.According to Steyn McDowall, executive director at Indwe Risk Services, coronavirus-related risk can be compared to cyber risk. “It can spread around the world very quickly with no particular end in sight.”Speaking during an online conference, McDowall explained how insurers had traditionally approached risk. “Most of the risk in the world has been due to natural or man-made catastrophes where losses materialise over a period of time. Hurricane Katrina is a good example – it had a massive impact, was a major risk with billions of dollars of loss, but there was an end to it. Covid-19 has no end in sight at all at this point.”He said the insurance industry at large knew how to cope with traditional risk, but were facing the unknown with the pandemic. “The reality with Covid, much like with cyber risk, is that because of the connectedness of the world we live in, the threat can spread around the world in a very short amount of time, and there is no sure way of knowing when or how the risk will end.”According to McDowall, from an insurance point of view this can be very problematic. “How does one plan financially for a risk that has no potential end in sight? In the past, the industry developed pools to address risks such as violence and terrorism or nuclear disasters.”He said it would not be far-fetched to see pandemic pools in the future – much like Sasria cover does for violence now, but for pandemics in particular.“What we will see, however, is that resources will be pooled or syndicated around the globe, rather than just within one country. There is simply not enough money from a single country perspective looking at the impact of Covid-19 so far – and already we are seeing moves of this kind being made by the likes of Lloyds of London.”McDowall said it was in the uncertainty of a pandemic that the biggest risk lay. “A localised crisis triggered by a hurricane, for example, has a reasonably direct evolution. The wind blows and rain falls, houses are destroyed and people dislocated, followed by a localised rebuilding and recovery process financed by insured claims. This is not the case with a viral pandemic.”He said Covid-19 has highlighted the importance of scenario planning and creating an inherent resilience within organisations where every potential unexpected risk has been considered and planned for.“The problem with Covid is that it was simply not foreseen. Companies were thinking along the premise of a bad f lu or disease breakout that would disrupt business for a week or two before they were up and running again,” he said. “Business interruption insurance generally provides coverage for financial losses sustained as a result of an interruption caused by property damage. Non-property damage business interruption coverage or extensions to date have not been as prominently purchased and would generally have specific sub limits if purchased.”He said pandemics were generally thought to have been excluded under property business interruption insurance as there was no direct property trigger.And the accumulation risk associated with a pandemic in non-property damage business interruption and related products is hugely underestimated around the world. “Ultimately, going forward, we are going to have to think very differently about how we insure a pandemic and what risk we are insuring. Risk management has never been as important as it is at present.”He said increased uncertainty and the alarming potential for systems failure during the pandemic was leading to a renewed focus on operational risk in organisations.McDowall said the crisis had also highlighted the need for insurers to build resilience upfront in the form of sufficient capital for claims and clear policy wordings with limiting risk accumulations. “This is because executing contingency plans during a crisis often comes at a high cost and typically cannot fully recover to pre-crisis conditions.”
