Transformations around property and technology dependency, ways of working, and wider global dynamics such as inflation, supply chain problems and climate change have all created new priorities for mitigating and financing risk.
When significant change feels constant, and ahead of an expert webinar led by WTW Business Services Practice, this insight considers five questions to help frame how organisations can adapt to evolving business interruption (BI) threats and optimise the cost of risk.
Question one: What are my business interruption risks?
Identifying BI risks is a key step in the process of evaluating and then mitigating them. In the business services sector BI risks may not be as obvious as they might in other sectors, such as manufacturing or retail, but they are nevertheless significant and rapidly changing.
Hybrid working, for example, has led organisations to respond using a variety of adjustments that have created new and sometimes unknown exposures. These arrangements may enable the business to operate in the face of disruption but what new risks might they also introduce? Are the potential losses an innovation opens the business up to ultimately justifiable?
Alternatively, in the current social conditions, where there is potentially heightened risk of civil unrest,1 does your firm understand whether it faces related elements of BI risk? How would potential strike action interrupt operations?
The pressure is on risk managers to look far and wide to identify the most potentially disruptive BI threats, even, or perhaps especially, when these are not immediately obvious.
Question two: Are my business interruption risks the same in every region?
Risk professionals working in global organisations are under additional pressure to not only uncover what and where risks are happening across territories, but also to what degree these risks are being addressed. They must also bear in mind the answers may not be immediately forthcoming and multiple stakeholders across territories may have differing perspectives on their BI threats.
Another related question here is whether the cost of working in light of the same event type will be the same everywhere.
Establishing best practice globally for tackling factors such as people and technology risks will involve detailed and continuous investigation and collaboration.
Question three: What impact will an interruption have on the business and how long will the interruption last?
Some factors are more important than others when it comes to keeping the business operational and maintaining that all-important customer base and your revenue streams
What is the effectiveness of your pre-loss preventative/protective arrangements and what are your post-loss strategies for the immediate crisis management and recovery beyond that?
What does the wider sector experience and data set reveal? What data analytics do you have and does benchmarking and information on the latest BI claims trends exist?
Quantifying the exposure based on these strands of information will enable a much more informed approach to your risk protection strategy and how you finance losses that may arise, whether through insurance or other means.
Organisations can form decisions on insurance limits and indemnity periods more accurately around a clearer understanding of business interruption exposure. In doing this, the business may reveal it has positioned coverage inappropriately, leading to over or underinsurance and inadequate definitions of how you are managing and measuring risk.
Question four: What role does insurance play in financing an interruption?
Business interruption reviews are often undertaken in conjunction with insurance advisers and risk consultants, not just to check the adequacy of limits but also to consider appropriateness of cover scope and indemnity periods. This to ensure that cover is relevant to the exposures of the business which are constantly changing.
Not all business interruption events are insurable or will fit business appetite for insurance. Insurance, however, can be positioned to assist both in paying for the cost of recovery, for example following physical damage loss or a cyber event, but also offering services pre and post loss to mitigate a loss. In addition, insurers may contribute to initiatives to improve business interruption risk.
Your insurance spend, self-insured costs and risk controls combine to make up your total cost of risk (TCOR) which can be reviewed by your brokers and risk consultants with the aim of optimising your TCOR.
Question five: Can we develop a consistent and receptive technique to address changing BI threats?
By working collaboratively with multiple stakeholders, asking the right questions and not assuming the answer will be the same across territories and business functions, risk professionals can work to establish processes to help their organisation stay on top of emerging BI threats.
In addition to having processes to keep the approach to managing constantly changing BI threats fresh and fit-for-purpose, the process of establishing this framework itself should be sufficiently receptive to change.
When it comes to managing BI risks there is no one right or wrong answer in what should be a continuous and ever-evolving activity.
Because of this dynamism, risk professionals may want to seek panoramic perspectives.
Later this month, WTW Business Services Practice will be bringing together an expert panel from the insurance world, risk consulting and industry to give a 360 perspective on BI threats and how to tackle them.
You can access this actionable insight by joining our webinar on November 29.
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