Wednesday, December 13, 2017

Make risk management great again

Risk managers are operating in a world of abundant uncertainty these days. Faced with geopolitical tensions, economic instabilities, social divisions, technological fault lines and environmental challenges, the industry is under pressure to respond.

This was the message from Parima chairman and founder Frank Baron at the risk management association’s event in Singapore this week. He said the combination of risks were a “wake-up call when it comes to making our organisations more resilient”.

The world record in catastrophic events experienced in 2017 only serves to underscore the point. Do hurricanes such as Irma, which was one of the strongest cyclones ever recorded, and Harvey, which was the wettest storm on record, represent a new norm? As the climate changes, will freakish weather events become more frequent and more severe?

“Yes, I tend to believe this is the new norm,” said Baron, who warned that 80% of economic sectors are affected by climate change.

At the same time, Donald Trump is flirting with nuclear war via the medium of ill-conceived messages sent out on Twitter. And while the US president campaigned with a message about how the US is losing jobs to China, the reality for risk managers in Asia is a future of jobs leaving emerging markets as the de-industrialisation of the fourth industrial revolution sees robots replacing human labour.

Baron gave the example of Tianyuan Garments’ decision this summer to open a US$20 million factory staffed with more than 300 robots in Arkansas. The company supplies Adidas, Armani and Reebok among others. Its new bots will work around the clock, sewing 23 million T-shirts a year for just 33¢ a shirt, according to Softwear Automation, which sells the robots.

“Around the world, even the cheapest labour market can’t compete with us,” said Tang Xinhong, chairman of Tianyuan, in the China Daily.

This is an alarming precedent for emerging markets and may severely impact countries in Asia that have yet to achieve middle-income status but which are already facing the possibility of being undercut by a workforce they cannot compete with. The world’s top brands are unlikely to build robot-staffed factories in countries where they face restrictive laws, unreliable courts and all the other problems of emerging markets.

But Baron urged risk managers not to be scared of being scared. “Let’s cope with it,” he said, before quoting Nelson Mandela: “Courage is not the absence of fear, but the triumph over it. The brave man is not he who does not feel afraid, but he who conquers that fear.”

These changes will have many consequences and risk practitioners need to anticipate them. In particular, they must leverage artificial intelligence and automation.

“Even if risk management remains qualitative, we need to get smarter at using data to manage risk,” said Baron.

And that of course is part of the pitch for a professional group such as Parima, which focuses on education, mentoring and the sharing of industry best practices.

“These are at the core of Parima,” said Baron. “We are on a journey to greater professionalisation. There’s still much to be done to raise risk management to the C-suite and board level.”

Too many executives in Asia still do not fully appreciate the value-creating DNA of risk management and insurance, leading Baron to paraphrase the US president in his closing words: “Let’s make risk and insurance great again.”

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Defending Asia's evolving risks