Oliver Wyman: How insurance risk functions should respond to COVID-19
Executive summary :
The coronavirus (COVID-19) is affecting insurers in a unique way, as it impacts both the asset and liability sides of the balance sheet and threatens business continuity as well as future economic growth.
The Organisation for Economic Co-operation and Development (OECD) considers COVID-19 as the greatest danger to the global economy since the financial crisis, and this statement is applicable to the insurance industry as well.
At the same time, risk management frameworks and crisis response have been significantly upgraded since the global financial crisis. The COVID-19 pandemic is an acid test for financial institutions’, and in particular insurers’, risk management capabilities in a crisis.
A pandemic is a stress most insurers have tested and scrutinised in their financial risk analysis, operational risk analysis, and business continuity planning. Insurers’ Risk functions have a unique understanding of the impact of such a scenario and how to manage the risk as it becomes reality and have dealt well with the immediate priorities over the past weeks.
These include working with the business to agree and implement immediate operational measures aimed at minimising adverse impact on the health and safety of employees and ensuring business continuity; assessing the financial impact of COVID-19 and triggering risk-mitigating management actions where sensible; and planning the work for the weeks ahead and reprioritising other scheduled world where necessary.
Oliver Wyman sees the following priorities for insurers’ risk teams:
- Perform in-depth scenario analysis;
- Adapt and prepare; and
- Communicate well.
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