Willis
Group on the changing risk landscape
Dominic Casserley, CEO of the global risk advisor and insurance
broker, explains the importance of making businesses, cities, and countries
better equipped to survive emerging risks such as cyberattacks.
Managing risk is an increasingly challenging task in a
world susceptible both to old hazards, such as extreme weather, and to emerging
threats, like cyberattacks. In this interview, the CEO of risk advisor and
insurance broker Willis Group, Dominic Casserley, discusses opportunities to
mitigate emerging risks, build more resilient companies, and digitize the
insurance process. This interview was conducted by McKinsey’s Rik Kirkland, and
an extended and edited transcript of Casserley’s remarks follows.
Interview transcript
The risk landscape
We see a number of trends that really underpin
growth for us. One is that in many parts of the world, businesses are
fundamentally underinsured. And that’s what we’re really involved in: risk
advisory and insurance brokerage for businesses. If you take the United States,
where insurance premiums in the space we’re talking about are about 4.2 percent
of GDP, and in China they’re just over 1 percent, that’s indicative of the fact
that there is a long way to go. There’s a long way to go not only in building
up more resilient companies, which have more insurance, but, actually, in the
middle of that, conducting advisory and brokerage activities to help them
navigate a complex world.
That’s one growth opportunity for us. A second
is in the world of healthcare. We provide a lot of advice and support to
companies in building their healthcare programs. Our role in advising companies
is very important, as their populations have higher and higher healthcare
aspirations. The third growth opportunity for us, on a macrolevel, is emerging
new risks. The one everyone reads about, of course, is cyber. It’s an area that
ten years ago hardly anyone talked about, but it is now a major issue for
companies, countries, cities to think through. And thinking through
loss-prevention and resilience to loss from cyberattacks and cyber issues and
data-management issues is a major topic.
Developing new products
When you’re thinking
about developing new products in new risk areas, you’re obviously struggling
with data. I’ll give you two examples. In the cyber area, the risk is still
evolving, and the best ways of managing that risk are evolving. I would say
that is very early; this is a very young event.1
Another new risk area,
one that is getting much more focus, is the impact of extreme weather, climate
change. And there actually is data. Some of it’s
controversial, but there is data. So you can start to model
the sorts of risks that people could be facing, particularly if they have a
diversified portfolio. For example, for someone on the East Coast of the United
States, there is a lot of modeling of the types of risks they may face, which
does enable you to start to develop products and ways of risk mitigation that
companies can adopt. But underpinning all of this is, how stable is the risk?
And is there data?2
Innovating across the
business
There is some evidence that the whole
insurance chain in B2B insurance could be starting to enter the
disintermediation process that we saw in banking, where in the ’70s, ’80s,
’90s, and early 2000s we saw a decline in the relative amount of volume that
was going through the traditional banking markets, because direct
capital-market disintermediation of that process increased. There’s some
evidence that we may be in the early stages of that happening in the insurance
field, in the B2B-insurance field. That would be of great interest to us, and
we’re looking at that very, very carefully.
The second element of innovation is,
obviously, responding to new risks. We’re working very hard to help businesses
figure out how they should think about cyberrisk. We’re spending a lot of time
investing in the weather outlook and what implications that has for our
clients, and developing new products, new capabilities for companies,
countries, and cities to think about resilience.
A third area of
innovation for us, relating to our own business, is digitization.3 It’s crucial to us for two reasons. One, it’s about
providing better products through data management. Our industry is full of
data; it isn’t full of a lot of information. So how do we turn that data into
usable information that can produce better products for our clients? It’s also
about reducing our costs and reducing the costs of the whole business
system—not just Willis’s role in it, but actually the whole flow.
Thinking about digitization and how it affects
our business—I’ll start at the client side, because there’s so much potential
data about, frankly, the loss history of groups of clients. We now have a
portfolio of 500 clients, who are broadly in the same category, and we can show
you that such a diversified portfolio produces, over time, this sort of loss
history. And we have the data to underpin that.
You then actually have a potential portfolio
of risk that can be used and marketed to a much broader set of
investors—insurance companies, but also potentially other investors. That
creates potentially a better product and better pricing for our clients. When
we think about digitization applied to us, there’s still a lot of paper in this
industry. A lot. And that’s expensive. So all the things we’ve seen in the
trading markets, or straight-through processing, in theory should be applied in
the insurance industry. Now, the insurance industry is more complicated. The
fundamental issue is that the insurance contract has more variability to it and
uniqueness to it than a bond. But it isn’t limitless, so there are
opportunities to digitize that.
Focusing on the future
We’re a people business, so the way we
attract, train, retain, motivate, and compensate them are critical issues.
Related to that, issue number two, is actually all the issues around the sense
of purpose of the company. Why do we exist? Values and having that as a common
bond, which enables us to be very mission driven and connected as an
organization, is very important.
The third issue is the use of technology: digitization issues to
serve our clients and also, frankly, to make us more effective and efficient—that’s
critical. But there is a fourth issue, which is that, like it or not, as a CEO
you do have to keep an eye on world dynamics. We’re a global company, and if
you think you can operate independently of what’s going on in the world, it’s
just not realistic. So you do have to make either long-term or short-term
resource-allocation shifts based upon the realities of what’s going on in the
world.
http://www.mckinsey.com/Insights/Leading_in_the_21st_century/Willis_Group_on_the_changing_risk_landscape?cid=ceointerview-eml-alt-mip-mck-oth-1509
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