Airmic Conference 2014 Roads to Resilience

1. Airmic Conference 2014Roads to Resilience • Wednesday 18th June 2014 • Arnout Van der Veer • Airmic • Martin Caddick • PwC • Ian Canham • Lockton • Neil Allcroft • Crawford and Company

2. Agenda • Introduction to Roads to Resilience, Arnout Van Der Veer, Airmic Board • Resilience – Board, Culture and Management Views, Martin Caddick, PwC • Practical Progress, Neil Allcroft, Crawford & Company • Insurance considerations, Ian Canham, Lockton • Open Discussion

3. Roads to Resilience • In depth case studies of; • AIG • Drax Power • IHG • JLR • Reviewing • People and culture • Business Structure • Strategy, tactics and operations • Leadership and governance • ODA • TTP • Virgin Atlantic • Zurich Insurance Case study research into what does ‘good’ look like - Cranfield Business School 2013

4. Preparing for Roads to Resilience • Catastrophic failures of risk management appear to take everyone by surprise… • …and yet with the benefit of hindsight the underlying causes of these failures appear obvious • Can we apply the lessons of hindsight to planning for the future?! Conclusions of Roads to Ruin -

5. Roads to Ruin: Seven key points of failure • Board experience, skill and lack of NED control • Board risk blindness • Inadequate leadership on ethos and culture • Defective internal communication • Organisational complexity • Risks from remuneration structures • Risk Glass Ceiling

6. Roads to Resilience Identified Key Questions and Enablers • How do resilient organisations oversee and manage their risk management strategy? • What are the enablers, drivers and risk management practices in place? • How do they measure the results and impact of risk management activities? • What are their governance (and empowerment) controls and strategies? • What are the critical leadership and business structure issues? Questions Enablers: • People and culture • Business structure • Strategy, tactics and operations • Leadership and governance

7. Roads to Resilience Outcomes: 5 Resulting Principles • Resilient companies have exceptional risk radar to detect changes in the external and internal situation • Resilient companies have diversified resourcesandassets to facilitate alternative approaches • Resilient companies build strong relationships and networks, both internally and externally • Resilient companies have the ability to respond rapidly and decisively to an emerging crisis • Resilient companies review and adapt based on experience and changing circumstances

8. Components of Principles and Business Enablers Principles: Business Enablers:

9. Roads to Resilience: Model for Resilience

11. PwC – Board, Culture and Management ViewsSome reflections…. • The traditional ‘protective disciplines’ are not enough. You can do these well and still fail. • It is not going to get easier – increasing speed and complexity makes risk less predictable. • Cannot be done in silos - resilience requires leadership from the top. • What We Know • Who We Are • How We Do It • What We Do

12. Hot Topic? Academia : Harvard, NYU Cranfield, Leeds, Glasgow, Warwick

13. Barriers and challenges The fog of resilience • You need to: • be able to measure key factors • use what you have, but cut across silos • discuss, debate, make intelligent decisions based on key factors Lack of appetite Conflicting definitions Resilience False assurance Limited horizon (time) Lack of a delivery plan – too conceptual Limited/no consensus Protectionism Preconceptions

14. Crawford – Practical Progress • New Risks into ERM Process • Classic frequency/severity matrix • Need a monetary value to inform risk appetite for emerging non physical risks • When does solvency, interest cover, credit rating, dividend cover become stressed? • What is the $£ value of risk appetite per risk and in the aggregate • Real problems assessing these values in respect of; • Cyber • Reputation • Regulation • Lack of historic reference points to provide guidance and benchmarking.

15. Practical Progress • Scenario Planning • More organisations/corporates are doing pre planning workshops within their businesses, driven by ERM compliance. This helps to engage and inform the risk management function more widely with operations • Engages with profit drivers e.g. Markets, Supply Chain, Unique Delivery and sources of competitive advantage • Drives out the key $£ risks and forces quantification and prioritisation • Currently this is episodic in many companies, rather than an embedded and living process • What should risk managers and insurers be thinking and doing?

16. Lockton - Insurance Considerations • Insurance and the Road Series of Reports • The majority of Airmic members are insurance buyers • Roads to Ruin found that insurance makes no difference in protecting companies in times of ruin • Roads to Resilience did not identify insurance purchasing as a required enabler to a resilient company • Is this fair and if so, can we make insurance more relevant?

17. Insurance Considerations • Do insurers take these findings into account? • Long term robustness and the identification of required principles and enablers provide longer term underwriting data, rather than short term lagging indicators such as claims.

18. Insurance Considerations • Do buyers take these findings into account? • Short term buying patterns and market behaviours inhibit insurers ability to meet the real risks facing the Insured

19. Insurance Considerations • Does the report appeal to an insurer’s/client’s beliefs but clashes with their actions? • Is there a fundamental mismatch between long term companies resilient needs and insurance market behaviours, which means insurance will always be a tactical not strategic purchase? • Can insurers differentiate risks from both a pricing and coverage perspective on long term resilience findings versus short term indicators? • Will clients take a longer term view of pricing even if it moves against market trends? • What risks are insurers willing to accept to create true risk partnership with their clients to ensure insurers get a fair share of the risk financing spend?

20. Insurance Considerations • Or are brokers to blame?

21. Final Observations • Effective risk management is NOT just about compliance • Risk is at the heart of strategy and effective risk management should be an enabler and a potential differentiator • Growth in a flat market can only be achieved by taking risks – these must be calculated and transparent • Reputation is critical and reputation risk management should be prioritised • The tone is set at the top • The information required to take risk aware decisions is most likely to exist already inside the company

22. Route to Resilience? • How can resilience be achieved? • How can current levels of resilience be measured? • Is wide organisational change required, or does resilience fit with your current agenda? • How do you ensure the Board receive the correct messages? • What barriers to resilience are anticipated? • What would assist you in making your organisation more resilient?