A New Year, A ‘New Better’

The past two years have proved to be incredibly volatile, with the global COVID-19 pandemic having had a ripple effect across many types of risk. Long-tail risks such as climate change and cyber threats are creating unprecedented volatility and have become increasingly important to manage.

Undoubtedly, there is much at stake for business leaders, individuals, and communities across Asia Pacific. While there are solutions to these challenges, they require collective action, focused efforts, and new strategies. How can you make better decisions amid increasing volatility in the new year?

As the world continues to heal and deal with the trauma from the last two years, APAC’s next steps towards recovery will be ones to watch. Varying levels of disparity and diversity in the region make it difficult to generalise risk. Ripple effects from the global risk landscape and rapid shifts caused by the digital revolution, geopolitical events, climate change, and evolving circumstances also highlight the interconnectivity of risk.

Aon’s 2021 Global Risk Management Survey (GRMS) – the 7th of its kind since 2007 – brings APAC business leaders some clarity around top risks facing the region. This is crucial especially since the changing nature of the top 10 risks has led to the highest ever reported loss of income in APAC compared to other regions.

Business interruption and slow economic recovery are most pressing risks currently – likely due to unstable air travel revival amid new COVID-19 variants and increasing global vaccination rates and travel corridors. This has resulted in continued uncertainty for tourism – an industry that contributes up to 10 percent of GDP in many APAC countries.

The pandemic has also upended modern supply chains, severely impacting businesses in the region. There is a pressing need for companies to build an efficient, transparent, and independent supply chain to overcome business interruption and cultivate sustainable economic growth.

Another leading current risk in the region is cyber-attacks. “We are witnessing an increase in cyber risks due to the rise in digitisation and remote working arrangements,” says Qin Lu, CEO of Greater China, Reinsurance Solutions and CEO of China, Commercial Risk Solutions.

Unfortunately, many traditional cyber insurances are still not designed to cover extortion or even the recovery of data or software. This is where the partnership between insurers and the insured become key.

Lu explains that leaders need to work with their insurance partners and other capital solutions to create risk transfer solutions, not just for a more holistic cyber solution, but also to insure intangible assets, intellectual property and help with energy transition.

Surprisingly, while extreme weather events are occurring regularly in the region, Climate Change currently ranks at number 21. However, it is inherently tied to other, more tangible risks, where the immediate impact is measurable, and is considered a rising underrated risk that should not be ignored.

Underlined by daunting challenges like slow vaccine rollouts, delayed infrastructure projects, workforce shortages and increasing ESG pressure, the risks outlined in Aon’s 2021 GRMS also reflect the need for organisations to focus on employee wellbeing, allowing talent to thrive to attract capital amid ever-changing market conditions.

Yet, there is currently a disconnect between businesses and their most valuable asset - people. Failure to Attract or Retain Top Talent ranked at number nine in Aon’s 2021 GRMS, compared to number 10 in 2019, reinforcing the continued importance of building a resilient workforce.

The role of all employees in building solutions and addressing future work challenges simply cannot be ignored, says Lu. “To move beyond the ‘new normal’, businesses in the region must strive to create an inclusive environment which allows people to bring their full, authentic selves to work,” he elaborates. “This includes making the right decisions when it comes to smart, hybrid work models.”

Overall, it is prudent for businesses to map their imminent and underrated risks against their risk appetite early on, so they can equip themselves with the right tools to balance growth and protection.

With 70 percent of respondents reporting that the Total Cost of Insurable Risk in the region was increasing, emphasising risk readiness would allow businesses to prioritise future-proofing operations and stay one step ahead of increasing competition.

Aon’s recently appointed CEO of APAC, Anne Corona, echoes this sentiment: “The reality is that businesses need to continue outpacing innovation. Risk as a percentage of GDP has decreased over the last 30 years and we need to reverse this trend.”

A key risk management strategy would be to focus on impact-based risk assessments instead of event-based ones, says Owen Belman, CEO of Asia, Commercial Risk Solutions, Health Solutions & Infinity.

“Traditionally limited to losses arising from physical events, risks such as business interruption now link to ESG and are more systemic, partly due to new technology and supply chain integration. Risks that were once seen as linear events, are not anymore.”

Although pandemic-exerted pressures remain on the rise, businesses in Asia can expect to move on from the urgency of today to focus on tomorrow by combining the right insurance partner, leadership, culture, and aptitude. As they gain the confidence to turn risk into rewards, the new year looks set to be the ‘new better’.