The need to acquire risk insurance

Risk used to be relatively simple. If a local bakery wanted insurance, you would worry about the structure, the location, how it operated and could have a pretty good view of its risk profile. Today that same business is far more complicated and interconnected:

  • Third party Point of Sale systems are used to process transactions
  • Businesses have a web presence and do a lot of online and even cross state sales
  • They manage payroll, benefits, and accounting using software-as-a-service providers
  • They have supplies for special boxes, ingredients, and favors that are sourced globally

Each of these additional connections and interconnectedness increases potential business interruption, liability, and sometimes even the property risk of the company.

A spider’s web of risk

As this demonstrates, risk is everywhere these days and growing all the time. The annual Accenture Pulse of Change Index found the rate of change affecting businesses has risen steadily since 2019 – 183% over the past 4 years. Never before has the risk landscape been so complex – a veritable spider’s web of interconnected disruption. This is born out in our annual Accenture Risk Survey where nearly nine in ten (88%) insurance respondents say complex, interconnected risks are emerging at a more rapid pace than ever before. Insurers identified financial, regulatory and compliance, and operational risks as the top rising risks, all having a knock-on effect on each other. Additionally, 77% of insurers say risks from other sectors are now impacting their business as companies and industries become more interconnected. Underlining the severity of risk interdependencies, our global study participants flag that individual risks can rapidly morph into strategic and existential threats.

When the business of risk is a risky business

When it comes to critical risks like cyber or NatCat, there is a lack of certainty when it comes to accurate forecasting on whether the losses will outpace premium charges, leading insurers to increasingly choose to pull back and restrict coverage. One extreme example of this new risk landscape would be to examine the potential consequences to the cyber insurance industry were one of the major cloud providers to have an outage. This could be worse than a NatCat 5. Given insurers are impacted by risk from three different angles: 1) as risk-takers providing risk transference to insured, 2) as investors with large amounts of premium invested in these sectors and 3) as enterprises with their own operational risks, risk management capabilities that can evaluate, balance and respond to this complex landscape become even more decisive for success.

The need to acquire risk insurance
The need to acquire risk insurance

To exemplify this, consider an event such as a port fire shutting down a major pier. The carrier may be on that core risk and have an insured claim. They could also have other insureds that are impacted due to the delay in goods. The carrier may also have investments in some of these companies that are impacted because of the financial impact. And the carrier might have equipment or supplies delayed that also impact operation.

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