By Liam McFarlane, FCIA, Economical Insurance
As we have learned from COVID-19, a pandemic can have a profound and prolonged impact on many facets of society across the globe. For insurers and reinsurers in both life and health and property and casualty practice areas, a pandemic may impact all aspects of a company’s operations and hence a broad and comprehensive approach to managing through such a crisis must be deployed. This article discusses how to build an effective enterprise risk management (ERM) response team to cope with a pandemic.
By leveraging and trusting what we have already built, a more effective and agile response can be rapidly deployed. ERM response teams within leading insurers have established various plans with procedures designed to enable management to respond to crisis events such as fires, cyber attacks, terrorist events, etc. At the time of a crisis, the crisis management team (CMT) must be quickly engaged and deploy the plans that will best respond to the crisis event. In the face of a pandemic, plans relating to business continuity, communicable disease, corporate emergency response, and crisis communication, among others, must be actioned.
A pandemic is fundamentally a health crisis (physical and mental), with knock-on effects on financial and other business areas. The initial response to a health crisis should be designed to secure the health and safety of employees and other key partners. Social distancing, knowing your team’s whereabouts, working from home, and reporting infection or contact, are all required to effectively manage the spread of a highly contagious disease. Quick decisions are required to minimize exposure from business and personal travel, meetings, conferences, etc. and the CMT must be empowered to act quickly and decisively in these circumstances.
To ensure business continuity, key leaders such as the CEO, CFO, and CRO should be immediately isolated to prevent contracting the virus and to ensure they can lead the organization through the crisis. Further, individuals who can temporarily fill all key executive roles in the case of incapacity should be identified in a central repository so that the organization can continue to function effectively in the face of the pandemic.
The relevant crisis management plans include action steps and designated plan leaders, depending on the severity of the crisis. Due to the far-reaching implications of a pandemic, the CEO and the Board must be engaged immediately, and throughout the crisis, to lead the CMT and the broader business in order to build a successful response. The CRO, ERM, and senior management must continue to promote a risk culture during these times to ensure the organization is able to navigate its way through the crisis. As part of this, it is important to stress the company’s key values to maintain employee engagement, boost morale, and increase productivity.
A pandemic war room should be created and staffed by senior executives to lead workstreams in order to steer through the pandemic.
Crisis management workstreams should include human resources, finance (capital and liquidity), investments, core business team(s), technology, operations, communications, and other streams as appropriate. The war room should contain a repository of all relevant plans, documentation of decisions, and other materials relevant to efficiently navigate through the crisis. All risks associated with COVID-19 such as cyber, fraud, reputational, supply chain, health and safety, etc. should be identified and the ERM response team should collaborate with the workstreams to develop plans to aid senior management in handling and monitoring these risks.
Constant assessment of all elements of the pandemic must be completed, and appropriate dashboards and other sources of information updated to facilitate effective decision making. In the early stages of the pandemic a number of these dashboards (disease tracking, investments, capital, liquidity, etc.) should be updated daily and response actions identified and executed as required.
Early in the crisis, the CEO, CMT, and workstream leaders should meet daily to develop and agree on action plans and to report on execution status of previously agreed plans. Communication should also be developed and, in the early stages, delivered frequently to stakeholders. Decisions must be made quickly to respond to a crisis such as a pandemic, and hence workstream leaders should be key decision makers.
Once business continuity has been established, meeting cadence can be relaxed somewhat. However, the ability to reestablish daily crisis management should be maintained in case of re-emergence. Additionally, it must be recognized that business plans constructed prior to the pandemic may be impacted materially and that the ability to plan in the face of significant uncertainty is compromised. Constant monitoring and modelling of potential scenarios and the ability to pivot and take action under different emerging circumstances must be developed.
Once management is effectively running the business in the face of the pandemic, there may be opportunities associated with the pandemic that can be identified and further explored, e.g., faster transition to working from home, expanding digital capability, etc. Those who respond quickly to these opportunities may be better positioned to manage in the new normal that will emerge from a pandemic.
Finally, at a suitable time in the crisis, the CMT should reflect and determine what worked and what didn’t to adjust crisis management plans and structures as appropriate, in the hope that a pandemic such as COVID-19 never occurs again.
