As the world continues to experience a state of polycrisis, in which risks are increasingly interconnected, the role of the risk manager is evolving. We sat down with Noel Richardson who shared his views on the importance of a proactive, data-driven approach to risk management and discussed how innovative technologies such as AI and geospatial tools can help insurers anticipate threats and strengthen resilience.
AXA recently launched its 12th Future Risks Report. Were you surprised by any of the top risks or by any movement in terms of the importance of those risks for experts?
It isn’t a surprise that the top risks, as ranked by both experts and the public, have remained stable – as they have over the past few years. The report reaffirms that climate change, geopolitical instability and cybersecurity are the greatest threats. And, unsurprisingly, AI and Big Data risks are ranked in fourth spot. There are some interesting variances at regional level, however; in Europe geopolitical instability overtook climate change as the biggest risk this year, for example. In Africa, meanwhile, AI and cyber threats rose above climate change in the rankings.
The findings illustrate that we remain in a state of polycrisis, in which risks are increasingly interconnected. And that underscores the important role that insurers can take to help our clients to build resilience – we have a global view of those risks and can use data to bolster risk management and mitigation efforts. In the case of those countries in Africa where cyberattacks now account for about 30% of all crime, for instance, it becomes clear that strong cyber security in infrastructure and awareness of risks is vital in terms of building resilience. Insurance can play an important role in building that resilience including through the services that form part of a cyber policy to build defences and incident response capabilities and risk management. At the end of the day, it is great to have insurance but it is even better not to have had an event in the first place. This is where we have such an opportunity to help our clients to build resilience to risks.
The Future Risks Report also highlighted the increasing concern about social fragmentation, with a large majority of risk experts and members of the public saying they believed their country to now be more divided. This is both a challenge and an opportunity for the global insurance industry, which is, after all, built to a large extent on a model of mutualization. It demonstrates the importance of us working together, to address risks globally.
How are emerging risks changing the way that global insurers think about and approach risk?
The Future Risks Report continues to underline the pace of change. And this increases the emphasis that we need to put on understanding the potential for aggregation across risk types. Global insurers now need to take a more transversal view of risks, bringing in operational risk, crisis management, ceded risks and reputational risks and so on. Our response to this challenge is that we try to be faster, to scan the environment in real time and to use much more granular data to understand risks. For example, geospatial technology helps us to look at the impact of events while they are happening – and it also enables us to get teams of people there to help more quickly in critical areas.
AI and other new tools help us to understand trends more quickly. It’s important that we view risks from a forward-looking perspective and see trends both in our own portfolios and the wider environment to be able to anticipate emerging risks, how to handle them ourselves and how to help our clients.
How is AXA XL using data and analytics to help clients gain a deeper understanding of key mitigation factors?
Helping our clients to better predict and prevent risks in this constantly evolving landscape is a core focus for us, and something that we can further enhance through the AXA Digital Commercial Platform (DCP). By combining technology and expertise, we can help clients to understand much more granular data on the risk factors of many physical assets that we – and they – cannot necessarily visit in person. And we overlay our understanding of risks like windstorm and flood, for example, to help them understand their exposures, including those in the supply chain, and to predict the potential exposures of tomorrow.
For a risk like cyber, which continues to grow in importance, and which is amplified by the use of AI in mounting attacks, we use data and analytics to help clients review their operations and identify areas where they can strengthen their risk management and resilience.
Understanding mitigation factors better is a win-win for client and insurer.
What are the key priorities for risk managers today and how do you see this evolving as the landscape continues to bring more challenges?
The key priority for risk managers nowadays is to have a big-picture view and to be able to anticipate risk. That’s particularly true when you think about the interaction of risks, the ways they can trigger each other and the potential for aggregation. Risk managers want to understand how the environment is evolving and to be able to look forward and horizon-scan. The Future Risks Report is a very useful tool to help with that.
Risk managers today need to be able to use AI and other tech effectively. We have masses of unstructured data within our industry that is too onerous to examine manually. But with AI it’s possible to dig into the data granularly and to see much smaller signals of trends and changes. Risk managers – and their insurance partners – can then start thinking about these smaller signals much earlier.
Communication has always been an important skill for risk managers and that is even more true today. They need to ensure that relevant stakeholders have the information they need to do their jobs, whether that be regulators or boards and so on, and they need to adapt the way they communicate with those stakeholders to be effective. The expectations of stakeholders are increasing year by year – and that is a great opportunity for risk managers but a challenge too. They need to be able to use technology and automate certain tasks to enable them to focus on where they really add value.
Over the course of your career in risk management, what’s been the biggest disruption/challenge that you have experienced and how did this change the way organisations approach risk management?
I’m European, and when I started working, risk management wasn’t really an independent function – it didn’t become so in Europe really until the early 2000s. I began my career as a CFO and some of the very formative events that happened were the dot.com bubble and then 9/11 which were devastating events for many companies. Previously, we had thought about risks deterministically but those events meant we had to start thinking about tail risks much more. And Solvency II – the Europe-wide risk-based regulatory framework for insurance and reinsurance companies – was adopted by the European Parliament in 2009.
The financial crisis of 2008-2009 was handled fairly well by the insurance industry, largely because of the work that had already been done in the preceding decade. These events meant that I had a bit of a baptism by fire into risk management! I think that having been in finance first benefitted me. Moving between functions can help you to understand other people’s risks and the considerations of various stakeholders. Risk managers need competency and skills but diversity – in all its manifestations – is also a real strength.
Read the AXA Future Risks Report.
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