DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty

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DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
ANALYSIS AND INSIGHT FROM

GLOBAL RISK
                                                      THE WORLD OF CORPORATE
                                                           RISK AND INSURANCE

DIALOGUE
Allianz Global Corporate & Specialty

                                       THE CLIMATE CHANGE ISSUE
                                        n Operational and compliance challenges for companies
                                                           n ESG risks for directors and officers
                                             n How catastrophe risk management is responding

                                                               THE COST OF CIVIL UNREST
                                                       The need for business continuity planning
                                                                           to address disruption

                                                          THE RISE OF SOCIAL INFLATION
                                                                                What’s behind it?

                                        THE WORLD’S LARGEST OFFSHORE WIND FARM
                                                  AGCS propels the Dogger Bank development
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
contents

     CONTENTS
           news

           04

                                                                                             Photo: iStock
                          News From AGCS And Allianz

           in brief

           05             Loss Log: Cyber Claims

           06
                                                                                                                                             10
                          Technical Excellence Explained
                                                                                                 The number of Environmental,
                                                                                                 Social and Governance risks
                          4 Questions For: Hyeji Kang,                                           that boards need to stay on
                                                                                                 top of is growing

           08             Global Head of Catastrophe Risk
                          Management and Reinsurance, AGCS
                                                                                             Photo: iStock

    CAUSE OF LOSS BY VALUE OF CLAIMS:
                 6% 9%                              85%    E xternal manipulation of
                                                            systems (e.g. direct attack
                                                            from the internet or malicious
                                                            content such as ransomware/

                                                                                                                                             14
                                                            malware)
                                                    9%     alicious internal action
                                                          M
                                                                                                 Companies that over promise or
                                                          (e.g. action taken by a rogue          lag behind on climate change are
                                                          employee)                              facing increasing scrutiny

                                                    6%     ccidental internal cause
                                                          A
                                                          (e.g. human error, technical/
                                                                                                                                              Photo: iStock

                        85%                               systems failure or outage)

                                                                      05
Based on the analysis of 1,879 claims worth €673mn ($800mn) reported from 2015
until year-end 2020. Total includes the share of other insurers involved in the claim in
addition to AGCS.

                        AGCS is on Twitter and Linkedin
                        Follow the Twitter handle
                        @AGCS_Insurance
                                                                                                 As Covid-19 took its toll many companies
                                                                                                 found their contingency plans overwhelmed
                                                                                                 by the rapid pace of the pandemic. How
                                                                                                 can businesses plan better?                 18
2
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
contents

                                                                                                                  Photo: iStock
                                                                                                                                                                                                                    ANALYSIS AND INSIGHT FROM

                                                                                                                                                               GLOBAL RISK
                                                                                                                                                                                                                     THE WORLD OF CORPORATE
                                                                                                                                                                                                                          RISK AND INSURANCE

                                                                                                                                                               DIALOGUE
                                                                                                                                                               ALLIANz GLOBAL CORPORATE & SPECIALTY

                                                                                                                                                                                                      THE CLIMATE CHANGE ISSUE
                                                                                                                                                                                                       n Operational and compliance challenges for companies
                                                                                                                                                                                                                          n ESG risks for directors and officers
                                                                                                                                                                                                            n How catastrophe risk management is responding

FEATURE ARTICLES                                                                                                                                                                                                              THE COST OF CIVIL UNREST
                                                                                                                                                                                                                      The need for business continuity planning
                                                                                                                                                                                                                                          to address disruption

                                                                                                                                                                                                                         THE RISE OF SOCIAL INFLATION
                                                                                                                                                                                                                                               What’s behind it?

                                                                                                                                                                                                       THE WORLD’S LARGEST OFFSHORE WIND FARM
                                                                                                                                                                                                                 AGCS propels the Dogger Bank development

 10
                                                                                                                                  SPRING/SUMMER 2021 EDITION
                                                                                                                                  www.agcs.allianz.com

               ESG Risks For Company Boards

                                                                                                            LET’S START THE DIALOGUE
 14            Climate Change Compliance Challenges                                                          Thank you for taking the time to read
                                                                                                             Global Risk Dialogue, our biannual
 18            Scenario Planning For Future Disruptions
                                                                                                             dialogue between AGCS experts and
                                                                                                             thought leaders for a global audience of
                                                                                                             risk managers, broker partners, insurance

 22            Preparing For Civil Unrest
                                                                                                             professionals, experts and media about
                                                                                                             issues of interest to the industry. It’s one
                                                                                                             way we showcase the considerable depth

 25            The Impact Of Social Inflation
                                                                                                             of talent AGCS underwriters, claims
                                                                                                             experts, risk engineers and leaders can
                                                                                                             bring to the conversation.
                                                                               Photo: Wikimedia Commons

                                                                                                             Thanks for stopping by.
                                                                                                             agcs.communication@allianz.com

                                                                                                          GLOBAL RISK DIALOGUE
                                                                                                          SPRING/Summer 2021 EDITION

 With no end to the pandemic-induced
 economic downturn in sight, protests are
 likely to continue
                                                              22                                          HEAD OF CONTENT
                                                                                                          Greg Dobie | greg.dobie@allianz.com

                                                                                                          PUBLICATIONS/CONTENT SPECIALIST
                                                                                                          Joel Whitehead | joel.whitehead@agcs.allianz.com
                                                                               Photo: DoggerBank.com

                                                                                                          CONTRIBUTORS
                                                                                                          Stuart Collins, Christina Hubmann, Greg Langley, Heidi Polke-Markmann

                                                                                                          Publishing House
                                                                                                          Larino Design | w.forrester@larinodesign.com

                                                                                                          GLOBAL HEAD OF COMMUNICATIONS
                                                                                                          Hugo Kidston | hugo.kidston@allianz.com

                                                              30
The Dogger Bank wind turbine fields will power around 5% of the UK’s energy needs
                                                                                                          DISCLAIMER
                                                                                                          Copyright © 2021 Allianz Global Corporate & Specialty SE. All rights reserved.

                                                                                                          The material contained in this publication is designed to provide general information
                                                                                                          only. While every effort has been made to ensure that the information provided is
                                                                                                          accurate, this information is provided without any representation or warranty of any
                                                                                                          kind about its accuracy and Allianz Global Corporate & Specialty SE cannot be held
                                                                                                          responsible for any mistakes or omissions.
IN CONCLUSION
                                                                                                          Allianz Global Corporate & Specialty SE

30             Risk Snapshot: AGCS Supports World’s                                                       Dieselstr. 8, 85774 Unterfoehring, Munich, Germany
               Largest Multi-Field Offshore Wind Farm
                                                                                                          March 2021

               Content Showcase:
 31            What’s On At www.agcs.allianz.com

                                                                                                                                                                                                                                                                   3
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
IN BRIEF

News from AGCS
and Allianz
CYBER RISK MANAGEMENT PARTNERSHIP ANNOUNCED
                                                                                                                 NEW GLOBAL HEAD OF
                                                                                                                 ENTERTAINMENT NAMED

Companies increasingly are using                                      protection against cyber incidents
cloud-based solutions: by 2024 more                                   within their own corporate environment,
than 45% of IT spending will shift from                               as well as incidents related to Google
traditional to cloud solutions.1 Benefits                             Cloud. The coverage may be offered
of cloud usage includes lowered cost,                                 globally at a later date.
enhanced data analytics and
expanded collaboration, but also new                                  Cloud customers, especially in
potential risks around security,                                      regulated markets such as financial        Michael Furtschegger has been
compliance and data privacy.                                          services and healthcare, are               appointed as Global Head of
                                                                      concerned about security and               Entertainment at AGCS. Based in
To serve cloud users, AGCS and                                        reliability in the cloud as they run the   Munich, Furtschegger has been
Munich Re have jointly developed a                                    risk of high-profile data breaches and     the interim head of the global
new commercial cyber risk insurance                                   outages. Some have resulted in great       entertainment team since the end
solution Cloud Protection +, a state-of                               financial and reputational loss or even    of 2020. The entertainment line of
the-art insurance solution designed for                               business closures. Business                business provides specialized
US-based Google Cloud customers                                       interruption (BI) due to security issues   insurance solutions for film
enrolled in Google’s new Risk                                         is the main cost driver behind cyber       productions, as well as live sports,
Protection Program. The program                                       claims and it accounts for nearly 60%      music or cultural events.
consists of two components: Risk                                      of the value of all claims analyzed,       Furtschegger steered the
Manager, a new tool that helps                                        with the costs associated with data        international expansion of this
determine a customer’s cyber security                                 breaches ranking second.                   business segment since 2016.
risk posture on the cloud, and Cloud
Protection +.                                                         Find out more at www.agcs.allianz.         Furtschegger originally joined
                                                                      com/news-and-insights/news/agcs-           AGCS in 2009 as a Global
Subject to underwriting eligibility,                                  google-cloud-munich-re-cyber-risk-         Customer Relationship Manager.
customers are offered a new type of                                   management.html                            He later served as Executive
                                                                                                                 Assistant to Axel Theis, founding
                                                                                                                 and long-term CEO of AGCS,
NEW GLOBAL HEAD OF BROKER MANAGEMENT NAMED                                                                       before taking over a role in the
                                                                                                                 New York office as Quality and
                    Stefan                                            America since August 2020. Prior, he       Projects Manager in the area of
                    Versluis has                                      served as Lead Director of Client and      global underwriting coordination.
                    been named                                        Broker Management for the North            He then served as the Head of
                    Global Head                                       American Northeast Zone.                   Global Strategy and Development
                    of Broker                                                                                    for the Chief Underwriting Office,
                    Management                                        Versluis has extensive experience in       Specialty. Before joining AGCS,
                    at AGCS.                                          the insurance industry from a number       Furtschegger worked as a
                    Based in New                                      of leadership roles in distribution and    management consultant after his
                    York, he has                                      underwriting across Australia and          MBA and diploma studies in
                    led the                                           North America since joining the            Business Management.
                    Regional                                          Allianz Group in 2008.
Broker Management team in North

4      1
           Gartner Research, Cloud Shift Impacts All IT Markets, October 26, 2020
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
IN BRIEF

Loss log
 CYBER CLAIMS

Our analysis of more than 1,800 cyber claims shows that although external events such as “DDoS” attacks
result in the most costly losses, internal incidents like human error or systems failure occur more often, albeit
with a lower financial impact.

There has been a notable rise in
cyber-driven claims in recent years, led     CAUSE OF LOSS BY VALUE OF CLAIMS:
by the strong growth of the cyber
insurance market but also by the rise in                    6% 9%
incidents such as data breaches,                                                                 85%         E xternal manipulation of systems
distributed denial of service attacks                                                                         (e.g. direct attack from the internet or
                                                                                                              malicious content such as ransomware/
(DDoS), phishing campaigns, and,
                                                                                                              malware)
increasingly, ransomware events.
Human error and technical failures                                                               9%          M
                                                                                                              alicious internal action (e.g. action taken
are also major drivers.                                                                                      by a rogue employee)

Losses resulting from the external                                                               6%           ccidental internal cause (e.g. human
                                                                                                             A
manipulation of computer systems                                                                             error, technical/systems failure or outage)
                                                                 85%
such as DDoS or phishing and
malware/ransomware campaigns
account for the significant majority of
the value of claims analyzed. Cyber-
crime generates the headlines but the
                                             CAUSE OF LOSS BY NUMBER OF CLAIMS:
analysis also shows that technical                                3%
failures, IT glitches or human error
incidents are the most frequent                                                                  57%          ccidental internal cause (e.g. human
                                                                                                             A
generator of claims, although, overall,                                                                      error, technical/systems failure or outage)
the financial impact of these events is,
on average, limited compared with                                                                40%         E xternal manipulation of systems (e.g. direct
external events. However, losses can                40%                        57%                            attack from the internet or malicious content
quickly escalate in the case of the most                                                                      such as ransomware/malware)
serious accidental incidents.                                                                    3%           alicious internal action (e.g. action taken
                                                                                                             M
                                                                                                             by a rogue employee)
Whether it results from an external
cyber-attack, human error or a
technical failure, business interruption
is the main cost driver behind cyber        Based on the analysis of 1,879 claims worth €673mn ($800mn) reported from 2015 until year-end 2020.
claims. This accounts for around 60% of     Total includes the share of other insurers involved in the claim in addition to AGCS.

the value of all claims analyzed, with
the costs associated with dealing with      schemes, which can often involve                          cyber-crime,, developing joint security
data breaches ranking second.               human error. It can also help mitigate                    standards and improving cyber
                                            ransomware attacks, although                              resilience.
Of course, the Covid-19 landscape           maintaining secure backups and a
brings new challenges. With home-           dedicated business continuity plan are
working now widespread, security            also valuable aids when it comes to                       Find out more about Managing
around access and authentication            limiting damage. Cross-sector                             The Impact Of Increasing
points is critical. Preparation and         exchange and cooperation among                            Interconnectivity – Trends In Cyber
training of employees can significantly     companies – such as what has been                         Risk www.agcs.allianz.com/news-
reduce the consequences of a cyber          established by the Charter of Trust –                     and-insights/news/
event, especially in identifying phishing   is also key when it comes to defying                      cyber-risk-trends-2020.html
and business email compromise               highly commercially-organized

                                                                                                                                                               5
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
IN BRIEF

Technical Excellence –
Principles and Practice
Technical excellence is a term that is often cited in insurance, and especially so in relation to AGCS’
international clients with their complex risk profiles. But while it is frequently used, what does it truly mean
in this context? AGCS’ Chief Underwriting Officers, Tony Buckle and Dr. Renate Strasser, who are jointly
responsible for technical excellence as a core element of the NEW AGCS strategy, share their perspectives.

AGCS’ risks range from aviation flag                                                 forward-looking pricing tools or
carrier fleets to pharmaceutical                                                     creating a harmonized global product
manufacturers, from investment                                                       framework, to practice groups
banks to offshore wind farms, and                                                    leveraging shared expertise on
beyond. This extraordinary variety                                                   specific risks or sectors.
presents a unique challenge for an
insurer: How to assess, cover and price                                              Data is a constant theme in the cross-
such risks, individually and across a                                                functional quest for technical
truly global portfolio, while offering                                               excellence as Tony Buckle highlights:
compelling value for customers                                                       “Being data-driven allows us to make
balanced with sustainable profitability                                              better decisions on exposures,
for long term security?                                                              enabling us to serve our clients and
                                             BIOGRAPHY                               brokers more quickly.”
It’s this challenge that is at the heart     TONY BUCKLE
of AGCS’ drive for technical                 Tony Buckle was appointed Chief         External data can add great value,
excellence (TEX), as Renate Strasser         Underwriting Officer Corporate          too. For example, third-party data
explains: “This isn’t simply an internal     and Member of the Board of              now supports the assessment of cyber
improvement initiative – it’s rooted in      Management at AGCS in July              exposures, monitoring hacker activity
the partnership that is at the heart of      2020 . He is responsible for AGCS’      on the dark web; Environmental,
complex risk insurance. Simply put,          global Alternative Risk Transfer,       Social and Governance (ESG)
we transfer insurable risk from              Energy and Construction,                performance indicators are utilized in
businesses to our balance sheet. The         Financial Lines, Liability and          directors and officers insurance
principle is simple, but the variety         Property underwriting portfolios,       underwriting; and data sourced by
and complexity of these risks makes          plus Allianz Risk Consulting            remote monitoring enables a
it much more challenging in practice.        services and Global Portfolio           comprehensive assessment of
That’s why the better we are at truly        Management. Prior to joining            numerous company sites without field
understanding and framing complex            AGCS, he held senior                    inspections.
insurance risks, the better will be our      underwriting and portfolio
offering and the more sustainable            management positions both in            UNDERWRITING PRINCIPLES
will be our customer relationships.          reinsurance (Swiss Re, GE
TEX in insurance is what                     Frankona) and corporate                 Buckle explains that while these new
differentiates the leader from the           insurance (Swiss Re Corporate           capabilities are essential, for an
crowd.”                                      Solutions, RSA and AXA XL), most        underwriting company like AGCS, they
                                             recently as Chief Underwriting          need to be underpinned by a shared
As Strasser points out, this extends         Officer International P&C at            professional credo – what he and
beyond the core underwriting business:       AXA XL.                                 Strasser refer to as “underwriting
“TEX is often linked primarily to risk                                               principles”.
assessment and pricing, but it has to
extend across the whole value chain,                                                 “Underwriting is a profession that
from product design, sales and             AGCS is currently investing across this   combines both art and science and this
distribution through underwriting,         spectrum, from teams harnessing           requires strong standards and principles.
claims and reinsurance.”                   insights from data, developing new        It should never be a box ticking exercise,

6
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
IN BRIEF

  TECHNICAL EXCELLENCE AND UNDERWRITING PRINCIPLES

                                                               uw principles
                                                  1 Focus on technical competence
                                                      2 Focus on Insurance Risk
                                                       3 Structured approach
                                                  4 Push authority & accountability
                                                      5 Portfolio Management

                                                          technical excellence

    global product                                    uw & portfolio          underwriting             volatility               claims
                                  pricing
     management                                        performance             excellence             management              excellence

  Lead the market in how we assess, cover and price risks and steer our global portfolio – delivering expertise and value for customers and
  sustainable profitability for AGCS.

                              compelling client proposition through best in class product offer

                                                                                                                                     Source: AGCS

but more of a skilled assessment using                                                            to local underwriting teams allowing
the best inputs available. And as such,                                                           for quicker decision making and direct
we at AGCS focus on five core principles                                                          communication towards clients and
that represent our core underwriting                                                              brokers.
philosophy.”
                                                                                                  “The individual underwriter is best
These principles focus on technical                                                               positioned in their local markets to
competence, insurance risk, a                                                                     assess the risk and rate it accordingly
structured approach in assessing                                                                  – and drawing on global expertise
risks, authority and accountability to                                                            where needed,” Strasser emphasizes.
the frontline, and emphasis on
portfolio management.                                                                             The final principle ”portfolio
                                                   BIOGRAPHY                                      management” reflects the global
Buckle says these go hand in hand:                 DR. RENATE STRASSER                            nature of AGCS’ business:
“In a nutshell, our underwriting                   In October 2020, Renate Strasser               underwriting should target a
should focus on our core competence                was appointed Chief Underwriting               balanced and diversified portfolio,
and match expertise to exposure. We                Officer Specialty and Member of                maximizing AGCS’ role as a lead
should focus our cover on the                      the Board of Management at                     insurer and absorbing larger losses for
exposures we truly understand so                   AGCS. She is responsible for                   clients, rather than day to day
that our clients benefit from our                  Aviation, Entertainment, Marine                operational losses.
expertise and we take on their                     and Mid Corporate underwriting
insurable exposures with a good                    portfolios, plus Underwriting                  Buckle stresses that this combination
understanding how those could                      Integrity and Solutions and the                of consistent underwriting principles
potentially develop.“                              Underwriting Academy. Prior to                 and technical excellence is the
                                                   joining AGCS, she was Chief                    foundation of AGCS’ strategy and
Strasser elaborates what this means                Executive Officer of NewRe.                    value proposition to clients: “We are
in practice: “First we have to ask                 Previously, she spent six years as an          dealing with sophisticated
ourselves: do we fully understand the              Assistant Professor for Corporate              international buyers who are
risk and exposure, and do we have                  Finance at the University of                   responsible for some of the world’s
appetite for it? Only then should we               Klagenfurt, before joining the                 most complex risks. Therefore, we
look at the coverage we provide and                Munich Re Group in 2004. From                  need to make sure we are best in class
on the price we need to charge to                  2007 onwards, she took over the                in technical excellence, delivering
ensure a fair risk-reward balance.”                role of Head of Aviation Facultative,          sustainable profit for our shareholder
                                                   where she was responsible for the              and being a reliable long-term
The AGCS underwriting principles aim               worldwide portfolio.                           partner for our clients with market-
to move authority and accountability                                                              leading solutions.”

                                                                                                                                               7
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
in brief

 REINSURANCE/CATASTROPHE RISK MANAGEMENT

4 questions for …
Hyeji Kang
Global Head of Reinsurance and CATASTROPHE RISK MANAGEMENT, AGCS

Photo: Wikimedia Commons

One of the most important parts of assessing and managing perils is catastrophe risk management, especially
as climate change threatens to tighten its grip. For insurers, a similarly important way to help balance the
insurance equation is reinsurance. Marrying the two is a delicate dance, as Hyeji Kang, AGCS’ Global Head of
Reinsurance And Catastrophe Risk Management, explains.

How has the reinsurance industry           coverage and capacity given our own          has showed us that the exercises
been impacted by Covid-19?                 retention appetite on certain covers,        insurers conduct to identify and assess
                                           as reinsurers were focusing on               potential risks can sometimes miss the
The pandemic has pushed insurers/          coverage and wording topics – even           magnitude and frequency of similar
reinsurers to think more carefully         more so than pricing – especially for        global events. The industry for some
about “black swan” events which we         lines exposed to pharmaceutical,             time has been developing ways to
didn’t think were likely to happen. This   cyber and contingency risks. The ways        assess cyber risks and understand what
challenged many of us in the industry      in which we handled reinsurance              kind of damage the next wide-reaching
to develop new ways to identify,           business had to change dramatically.         cyber-attack could do to their portfolios.
assess, mitigate and manage these          The industry managed quite well in           When we invited several vendors to
risks – something in which reinsurance     the end, but the slow pace of                show us how they go about it, we found
plays a big role. At AGCS, we worked       renewals was due to the combination          that the topic is multi-faceted.
with colleagues from multiple              of remote working and a hard market.         Depending on what you focus on
insurance functions to discuss                                                          (pricing, accumulation analysis, etc.), the
exposures, how reinsurance would           What do you think is the biggest             model outcome can widely vary. For
respond to various scenarios and how       challenge for the catastrophe risk           insurers, the issue is more daunting
else we could mitigate the risk. Given     modeling industry?                           because we must take this information
the heightened awareness and focus                                                      and make a decision on how we shape
on topics like communicable disease        In general, for both modeling vendors        coverage, how we price it and which
and cyber events, coupled with the         and insurers, the challenge is to keep up    loss mitigation controls to consider.
hardest reinsurance market since           with the ever-changing list of major risks   These complex man-made
9/11, the biggest challenge we had         insurers face and to learn how to            accumulation events are particularly
was to secure proper levels of             correctly predict them. The pandemic         difficult to model because there are

8
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
insured values are exposed, which
                                                                                                    then leads to better risk management
                                                                                                    measures. This goes beyond a simple
                                                                                                    property insurance implication – an
                                                                                                    investment firm with a large real
                                                                                                    estate portfolio would also be keen to
                                                                                                    know and protect these assets on
                                                                                                    behalf of their investors. There are
                                                                                                    also other by-products coming out of
                                                                                                    the tools we have developed to map
                                                                                                    the concentration of insureds. Some
                                                                                                    non-weather events, like terrorist
                                                                                                    attacks, riots, environmental
                                                                                                    contaminations, or large explosions
                                                                                                    like we saw in Beirut or Tianjin –
                                                                                                    basically anything location specific
                                                                                                    can be simulated and monitored.
                                                                                                    These tools are key to AGCS’ own risk
                                                                                                    management, and provide our clients
                                                                                                    with meaningful insights as well.

                                                      Climate change awareness takes center
                                                   stage in Brisbane, in the midst of Australia’s
                                                                  severe 2020 bushfire season

human factors – unlike modeling a          amid the uncertainty is to actively
damage from a hurricane – both in the      focus on working with customers on
cause and prevention of the events and     preventative measures and steering
the claims in the aftermath of an event.   our portfolio composition with these
                                           numerous not-yet-well-quantified risks
How can the insurance industry             in mind. Our risk consulting is well
better face the challenges you             positioned to help in this sense.
mention throughout 2021 and
beyond?                                    given the volatility of
                                           forecasting, How can catastrophe
Speaking of human factors, another         risk management help in mitigating
modeling challenge for the industry is     BOTH WEATHER AND N0N-NATURAL
to understand the impacts of climate       CATASTROPHE PERILS IN THE YEARS                            BIOGRAPHY
change. Not only are the impact of         TO COME?                                                   HYEJI KANG
the weather and rising sea levels hard                                                                Hyeji Kang joined AGCS in 2015
to predict, but there’s also the human     Catastrophe risk analytics at AGCS is                      as Chief Actuary for North
behavioral change – such as                already actively used when we try to                       America. In 2018, she became
urbanization causing a greater             price the risks and also monitor any                       the Head of the Actuarial
potential for flood damage and             significant accumulation from a                            Function for AGCS. Prior to
growing abstraction of fresh water         weather event. We provide services                         joining Allianz, she held various
from rivers and groundwater resulting      called “client risk profiles” for our                      consulting and in-house
in increased risks from drought, for       clients with many global locations,                        positions with Price Waterhouse
example. The industry is only              using such analytics and insights. This                    Coopers (PwC), CNA Insurance
beginning to learn how to encompass        service helps customers know                               and Willis Towers Watson. Kang
all these factors into a perfect model,    precisely what their locations are                         holds a degree in Economics
but because climate change happens         susceptible to – such as flood risk for                    from the Seoul National
gradually the accuracy of a prediction     buildings near water, hail risk for flat,                  University. She works in the
for any given year is more difficult to    large roofed buildings or wind risks for                   Munich office.
rely on. I think what insurers can do      multi-storied buildings – and what

                                                                                                                                          9
DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES

 ESG MOVES INTO THE MAINS
 (AND THE BOARDROOM)

                                        The journey from a voluntary regime for companies around environmental, social
                                        and governance (ESG) topics to a more regulated and compulsory one involving
                                        transparency, disclosure and reporting is well underway. Although there are
                                        currently no global, standardized ESG reporting benchmark requirements, “hard”
                                        legal measures with “teeth” are on the rise. D&Os beware….

                                        According to law firm, Herbert Smith       activities. Outside of Europe, the
                                        Freehills, there have been over 170 ESG    Institutional Shareholder Services
                                        regulatory measures since 2018 at the      recently announced it will adopt a

              65%
                                        national and European Union (EU) level     similar standard based on the EU
                                        with Europe leading the way around         taxonomy. Ultimately, this changing
                                        the globe, accounting for around 65% of    landscape will influence how, and in
                                        all ESG-related regulation. For example,   which sectors, companies and funds
             amount of global ESG-      the Non-Financial Reporting Directive      invest, as they consider whether a
            related regulation the EU   has obligated companies to report on a     particular asset fits within the taxonomy
                   accounts for
                                        wide variety of ESG-related metrics,       or ESG strategy, how they will report on
                                        while last year the European               it, and what shareholders and
                                        Commission published its final report      stakeholders will think.
                                        on the EU taxonomy – a classification
                                        system, establishing a list of             As investment decisions are
                                        environmentally sustainable economic       increasingly influenced by this new

10
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES

                                                                             years – particularly regarding

                                                             Photo: iStock
                                                                             increased claims frequency and                      THE 1 MINUTE DIALOGUE
                                                                             severity. One of the reasons for this has
                                                                             been a significant shift in this             u Over 170 ESG regulatory measures
                                                                             environment from traditional financial         introduced since 2018 at the
                                                                             statement- or reporting-related                national and EU level. Europe
                                                                             litigation, such as bankruptcy or fraud,       accounts for around 2/3 of all ESG-
                                                                                                                            related regulation
                                                                             to so called “event-driven” or “bad
                                                                             news” litigation, which can often result     u As investment decisions are
                                                                             in significant securities or derivative        increasingly influenced by this new
                                                                             claims from shareholders, if the “bad          environment, so too is the role of risk
                                                                             news” causes a share price fall or a           management and that of the board
                                                                             regulatory investigation.                      of directors

                                                                                                                          u Litigation or investor, shareholder
                                                                             “Increasingly, such incidents can              and activist actions increasingly
                                                                             involve ESG issues (see graphic),” says        focus on ESG topics such as climate
                                                                             Shanil Williams, Global Head of                change, pollution, diversity, cyber
                                                                             Financial Lines at AGCS. “And if an            security and even CEO pay

STREAM
                                                                             ESG issue is not handled or disclosed        u Elevating
                                                                                                                                    and identifying ESG risks
                                                                             appropriately by the company or                through a company‘s risk registers
                                                                             board, it can result in ‘bad news’ in          and committees and making sure it is
                                                                             their market, ‘bad news’ for the               understood how they will play out in
                                                                             company share price and ‘bad news’             and out of the boardroom is crucial
                                                                             in the form of regulatory and legal
                                                                             action. ESG topics can pose a
                                                                             significant D&O risk for companies            change. For example, there have
                                                                             and their insurers.                           been a number of recent lawsuits in
                                                                                                                           the US following wildfires where it is
                                                                             “Legislation is evolving. Regulators are      alleged companies did not disclose
                                                                             becoming more active, as are many             the changes in the environment
                                                                             other stakeholders. Companies – and           that were leading to more wildfire
                                                                             current and future D&O underwriters           activity, and, subsequently, how this
                                                                             – need to be aware of ongoing global          could negatively impact the
                                                                             ESG matters, from activist investor           business. Companies’ boards of
                                                                             campaigns to social justice protests or       directors have a vital duty to ensure
                     Investor, shareholder and activist actions
                      increasingly focus on ESG topics such as
                                                                             money laundering schemes in order to          solid corporate climate
                                              climate change                 adequately assess potential perils and        responsibility with appropriate
                                                                             how they can manifest in terms of             reporting and due diligence.
                                                                             potential liability. There are a growing
 environment, so too will be the role of                                     number of topics that boards need to        •	Over the past year there has been a
 risk management and in particular                                           stay on top of where we already see            big uptick in Board Diversity
 that of the board of directors.                                             examples of litigation, investor,              Litigation, particularly in the US, with
 Directors’ duties in many jurisdictions                                     shareholder and activist actions and           cases typically alleging there has
 are already under growing scrutiny                                          D&O claims.”                                   been a failure in the fiduciary duties
 and this will only deepen given                                                                                            of directors given the inadequate
 tightening regulatory frameworks.                                           TOPICS TO WATCH                                level of diversity on the board or in
 Questions and clarity about who is                                                                                         management positions. A number of
 responsible for ESG topics, such as                                           Climate Change Actions: Although
                                                                             •	                                            studies show diversity brings better
 climate change, on the company                                                ESG represents a much broader                risk management and financial
 board will not just be a matter of “nice                                      topic than just climate change (see          performance to a board. Companies
 to have” but essential if the duties of                                       also page 14), incorporating issues          in the top quartile for gender, ethnic
 directors are considered to be                                                such as social mobility, diversity,          and cultural diversity on their
 adequately fulfilled in future. Such                                          business and human rights and                executive team are 25% more likely to
 topics need to be right at the heart of                                       sustainable and social investment,           have above-average profitability of
 company decision-making.                                                      understandably the climate change            outperformance than companies in
                                                                               topic is very much at the forefront of       the fourth quartile1, according to
 “BAD NEWS” IN THE SPOTLIGHT                                                   people’s minds. Much of the                  McKinsey & Company. This uptick in
                                                                               litigation seen to date has been             litigation started in California, where
 The directors and officers (D&O)                                              around disclosure – companies and            a number of technology companies
 insurance market has already seen                                             boards failing to adequately                 such as Oracle and Facebook have
 some significant challenges in recent                                         disclose the material risks of climate       faced claims. “That the composition
 1
     McKinsey, Diversity Works: A Study On Why Inclusion Matters, May 19, 2020                                                                                      11
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES

  esg and the boardroom

ESG topics can pose significant risks for companies. Source: AGCS

     and diversity of the board is                          CEO Pay is another hot topic,
                                                          •	                                          says Williams. “The main complaint
     adequate enough to effectively                         particularly for investors. Norway’s       from the investment community has
     manage risk is an issue that is only                   $1trn sovereign fund – one of the          been around transparency. It is hard
     going to expand in terms of                            world’s largest – is just one that has     to understand a company’s cyber
     importance and governance in                           developed active stewardship of            risks. And companies for various
     future,” says Williams.                                management compensation                    reasons have been slightly hesitant to
                                                            proposals in the companies it invests      provide enough transparency but the
  Pollution and Environmental
•	                                                         in, amid concerns about opaque pay.        ones that do certainly see the benefit.
  Disasters: In the aftermath of events                     At the same time, a growing number         The increasing focus on digitalization
  such as the collapse of a dam or an                       of companies are looking at linking        and remote working following the
  oil spill impacting an ecologically-                      CEO or director level remuneration to      Covid-19 pandemic means this topic
  sensitive area, the boards and                            climate/ESG-related targets, such as       will only become more important.”
  directors of impacted companies are                       greenhouse gas reduction.
  increasingly being questioned about                                                                Impact of new supply chain legislation
  whether they had adequate risk        Cyber Security is fast becoming one
                                      •	                                                            around aiding and abetting violation
  management processes in place to      of the most important ESG-related                            of child labor law, and water
  prevent such incidents from           topics, particularly in terms of the                         management and biodiversity
  occurring and how aware they were     sustainability of a business.                                degradation strategies, as misuse
  of the possibility of them happening. Determining the cyber resilience                             comes under increasing scrutiny, are
                                        status of a company is increasingly                          just a couple of other examples of ESG
  G reenwashing Claims: Incidents of
•	                                     important for investors, while                               topics increasingly on the risk radar.
  companies providing misleading        assessment of potential cyber
  information in order to present a     exposures should be an essential                             BEST PRACTICE COMPLIANCE AND
  more environmentally friendly and     part of any M&A process, given the                           LIABILITY MITIGATION
  responsible public image have         number of large data breaches and
  already been the subject of           the possibility that an acquiring firm                       A crisis represents the real test of
  litigation in the US and crackdowns   could be liable for incidents pre-                           governance. And for many companies
  by regulators are imminent. In the    dating the merger. The 2018 Marriott                         the pandemic has proven to be a huge
  UK, the Financial Conduct             breach, which resulted in a $20mn+                           learning curve with the board having to
  Authority has developed a set of      regulatory fine for the hotel group,                         be at the center of the company’s crisis
  principles to tackle concerns over    was traced to an intrusion in 2014 at                        management response. One positive
  false claims. The Task Force on       Starwood, a hotel group it acquired                          change to emerge is a recognition of
  Climate-Related Financial             in 2016. “Cyber security is a big                            the increasing need to monitor, manage
  Disclosures, the Securities and       governance topic for companies –                             and report on a wider range of
  Exchange Commission (SEC) in the      making sure it is understood at the                          potential risks than before, including
  US and European supervisors are       board level and that cyber risk                              non-financial topics, which could result
  also looking at this issue.           monitoring processes are in place,”                          in many companies being better

12
ENVIRONMENTAL, SOCIAL AND GOVERNANCE ISSUES

 ALLIANZ SUSTAINABILITY APPROACh FOR NON-LIFE INSURANCE UNDERWRTING

                                                                                               1. The United Nations Principles for Sustainable Insurance Initiative
                                       2. 97 sustainable insurance solutions, 28 emerging consumer solutions, 35 insurance solutions with sustainability component

positioned for the advent of new              there is a discrepancy between what a                        their ESG capabilities, given Allianz’s own
disclosure regimes around ESG risks.          company does and says internally and                         initiatives (see graphic above) and its
                                              what it does and says externally (even                       experience in observing ESG best
“What we have learned from our own            further to the extent to which any public                    practice across many different industry
ESG experience is that you need a strong      statements or actions of a company                           sectors. At the same time, ESG
commitment at the management and              might contravene a legally-binding                           information can also help to improve the
board level,” says Michael Bruch,             framework). Engaging with ESG subject                        underwriting process, to the benefit of
Global Head of Liability Risk                 matters is crucial. It is important that ESG                 insurers and companies.
Consulting/ESG at AGCS. “Within               is not only on the board agenda a few
Allianz, we have implemented our own          times per year but that a company                            “We are utilizing ESG data in our D&O
ESG board, so that all the important          embeds sustainability topics and                             insurance underwriting,” explains
group centers are really committed to         thinking into the whole organization.                        Williams (as part of a partnership with
sustainability and the ESG topic,             Beyond internal steering, it is also crucial                 investment and risk consultant, the
including the setting of specific targets     for the board to acquire appropriate                         Value Group). “We have statistically
from top management down. Then it is          skills and understand the external                           modelled a lot of ESG data points
about translating this into execution.        requirements in order to be successful in                    against claims and public litigation
                                              the long-term.                                               and we do see some predictive power
“ESG risk topics should be integrated                                                                      there. From an insurer’s point of view,
into enterprise risk management and           “Elevating and identifying ESG risks                         conversations around ESG-related
all relevant operational processes.           through a company’s risk registers and                       topics, in addition to financial topics,
What we are seeing in many of the             committees and making sure it is                             are becoming much more important.”
industry sectors of our client                understood how they will play out in
community – and in particular the             and out of the boardroom, is crucial,”
                                                                                                             Listen to the AGCS and Airmic
power and utilities sector which is           adds Williams. “Disclosure is not just
                                                                                                             webinar: ESG in 2021: Moving
heavily challenged by the transition of       about the various regimes coming in
                                                                                                             Into The Mainstream for further
its own business model into a more            around the world but also about how
                                                                                                             insights on this topic
green energy-related power supplier           you disclose to the wider community –
                                                                                                             www.youtube.com/watch?v=
– is that ESG and sustainability is           employees, stakeholders and the media
                                                                                                             BiGI4dRKnJI&feature=youtu.be
having a high impact on virtually all         – the latter, in particular, which can have
functions within the company.”                a devastating impact on reputation.”

Companies and their boards can benefit        NOT JUST ABOUT GOVERNANCE                                      OUR EXPERTS
from conducting internal due diligence                                                                       Michael Bruch
around their decision-making processes        ESG is not just about governance issues                        michael.bruch@allianz.com
and determining any potential risk areas.     according to Bruch. From the insurer’s
                                                                                                             Shanil Williams
For example, the prospect of climate          perspective, there are also opportunities,
                                                                                                             shanil.williams@allianz.com
change litigation risk increases the more     such as helping organizations to improve

                                                                                                                                                                 13
CLIMATE CHANGE ACTIONS

          AFTER THE FLOOD

                                          Businesses are entering a period of huge policy and regulatory change as the
                                          world steps up its efforts to combat global warming. Actions to address climate
                                          change pose significant operational and compliance challenges for companies
                                          and those that over promise or lag behind are facing increasing scrutiny.

                                          The physical consequences of                                          according to NASA analysis1. Despite
                                          increasing weather volatility are                                     the reduced economic activity during
                                          becoming all too apparent. In February                                the pandemic, the World
                                          2021, deadly Winter Storm Uri brought                                 Meteorological Organization2 states

              50%
              Increase in global CO2
                                          record seasonal cold temperatures to
                                          parts of the US, testing the
                                          infrastructure to the limit and leaving
                                          millions in Texas without power or
                                                                                                                that greenhouse gas concentrations
                                                                                                                continued to rise in 2020. Carbon
                                                                                                                dioxide levels have increased by nearly
                                                                                                                50% since the Industrial Revolution 250
            levels since the Industrial   water. As the world battles against                                   years ago, while the amount of
                    Revolution            coronavirus, extreme weather events                                   methane has more than doubled.
                                          like Uri are a timely reminder of the
                                          potentially catastrophic threat posed by                              Evidence of climate change and its
                                          extreme weather and climate change.                                   impact continues to mount, with
                                                                                                                longer lasting and more frequent heat
                                          The last seven years have been the                                    waves, wildfires and hurricane
                                          warmest on record, with 2020 joining                                  seasons, as well as sea level rises, on
                                          2016 as the hottest year on record,                                   the horizon. The 2020 Atlantic
                                          1
                                              NASA, 2020 Tied For Warmest Year On Record NASA Analysis Shows, January 14, 2021
14                                        2
                                              World Meteorological Organization, 2020 Closes A Decade Of Exceptional Heat, December 24, 2020
CLIMATE CHANGE ACTIONS

                                                                                                                                                              THE 1 MINUTE DIALOGUE

                                                                                                                                      Photo: iStock
                                                                                                                                                       u As
                                                                                                                                                          the world transits to a low-carbon
                                                                                                                                                         future, more countries are introducing
                                                                                                                                                         climate change-related regulations

                                                                                                                                                       u Companies
                                                                                                                                                                  are likely to face
                                                                                                                                                         simultaneous regulatory compliance
                                                                                                                                                         changes across many fronts

                                                                                                                                                       u Litigation
                                                                                                                                                                  activism is increasing as
                                                                                                                                                         advocacy groups advance climate
                                                                                                                                                         policies and drive behavioral shifts

                                                                                                                                                       u Businesses
                                                                                                                                                                  need to use targeted data
                                                                                                                                                         and analysis to identify potential

D...
                                                                                                                                                         impacts from developments in climate
                                                                                                                                                         change risks, regulation and litigation

                                                                                                                                                      change, says Chris Bonnet, Head of
                                                                                                                                                      Environmental, Social, and
                                                                                                                                                      Governance (ESG) Business Services
                                                                                                                                                      at AGCS. “Like climate change,
                                                                                                                                                      pandemic risk was previously just an
                                                                                                                                                      abstract exercise, now it is a risk we
                                                                                                                                                      experience every day. We also are
                                                                                                                                                      seeing growing activism and social
                                                                                                                                                      pressure on governments and
                                                                                                                                                      companies to address climate change.”

                                                                                                                                                      INTERNATIONAL COMMITMENTS
                                                                                                                                                      MATERIALIZE AS GOVERNMENT POLICY

                                                                                                                                                      The past decade has seen marked
                                                                                            Changes in societal and generational
                                                                                                  attitudes to climate change are                     progress on international co-operation
                                                                                          influencing policy and regulation going                     and commitments to address climate
                                                                                                                          forward
                                                                                                                                                      change and greenhouse gas emissions.
                                                                                                                                                      Practically every country has signed
  hurricane season3 produced a record-                                  “Covid-19 is a reminder of the urgent                                         the Paris Agreement (the US
  breaking 30 named storms and 12 US                                    need to tackle climate change and                                             announced in January 2021 it will re-
  landfalling storms. Australia’s “Black                                promote sustainability to build greater                                       join), which calls for keeping the global
  Summer” bushfires of 2019-2020, the                                   resilience in the future. It has                                              temperature to 1.5°C above pre-
  most intense bushfire season to date,                                 demonstrated the potential for                                                industrial era levels in order to avoid
  occurred in Australia’s driest and                                    environmental and climate issues to                                           the worst of warming. A growing
  hottest year on record.                                               inflict enormous damage on society,”                                          number of countries are also striving to
                                                                        says Isabel Naumann, responsible for                                          achieve carbon neutrality, or “net zero”
  PANDEMIC IMPACT PUTS CLIMATE                                          Sustainable Finance Regulation at                                             emissions, within the next two decades.
  CHANGE BACK ON THE BOARD AGENDA                                       Group Regulatory and Public Affairs                                           By early 2021, countries representing
                                                                        at Allianz SE.                                                                more than 65% of global CO2
  For businesses, coronavirus worries                                                                                                                 emissions will have made ambitious
  superseded climate change concerns                                    “The election of President Biden is also                                      commitments to carbon neutrality,
  in 2020. Climate change ranked as                                     significant in pushing the sustainability                                     according to the United Nations4.
  only the ninth most important risk in                                 agenda. There is now a period of
  the Allianz Risk Barometer 2021,                                      policy and regulatory change in the                                           These commitments are now
  pushed down two places in a year                                      US. Having the US back at the                                                 materializing as government policy,
  dominated by the pandemic. What the                                   international table is critical if the                                        says Naumann: “There is a clear
  pandemic and climate change have in                                   world is to take an aligned approach                                          political will to tackle climate change.
  common is that they are both global                                   to climate change.”                                                           We see a growing number of climate
  systemic risks. It is unsurprising then                                                                                                             change-related legislative activity, for
  that in 2021, climate change is back on                               The pandemic has changed the                                                  the real economy but especially for the
  the agenda as a priority.                                             context of the debate around climate                                          financial sector. The idea is to facilitate
  3
      National Oceanic And Atmospheric Administration, Record-Breaking Atlantic Hurricane Season Draws To An End, November 24, 2020
                                                                                                                                                                                                   15
  4
      United Nations, The Race To Zero Emissions And Why The World Depends On It, November 2, 2020
CLIMATE CHANGE ACTIONS

the transition of the real economy                                      guidance, including product liability,                             that will become relevant to almost all
through sustainable finance                                             building codes, supply chains and                                  sectors, from financial institutions to
regulation.”                                                            reporting.                                                         manufacturing and technology.”

RISING TIDE OF REGULATION                                               From a policy and regulatory                                       Companies are likely to face
                                                                        perspective, it is now full steam                                  simultaneous regulatory changes
While the physical loss impact is                                       ahead. “Businesses are entering a                                  across many fronts, which will not
seen as the most significant exposure                                   period of huge policy and regulatory                               always be aligned. “Climate change-
from climate change for companies                                       change. Companies will face new                                    related regulatory and legal
according to this year’s Allianz Risk                                   regulations and standards in the                                   developments are likely to emerge
Barometer respondents, regulatory/                                      coming years, as well as reviews of                                over time and be iterative in nature.
legal risk is a rising concern                                          existing rules and legislations with                               The pace of regulatory developments
(see graphic below).                                                    sustainability in mind,” says                                      will also be unpredictable,
                                                                        Naumann.                                                           accelerating or slowing with changes
As the world transits to a low-carbon                                                                                                      in governments and policy,” says
future, more and more countries are                                     COMPLIANCE CHALLENGES AND                                          Bonnet.
introducing climate change-related                                      NEW LIABILITIES
regulations: By mid-2019, more than                                                                                                        CLIMATE CHANGE LITIGATION
1,600 laws and policies relating to                                     A surge of climate and sustainability-
climate change had been created                                         related regulation in combination                                  The frequency and diversity of legal
across 164 jurisdictions, according to                                  with inconsistent approaches across                                actions addressing climate change
law firm Herbert Smith Freehills5.                                      jurisdictions and a lack of data                                   are increasing, including those that
                                                                        availability represents significant                                are premised on regulatory
So far, these changes have targeted                                     operational and compliance                                         responses to greenhouse gas
sectors closest to greenhouse gas                                       challenges for companies, according                                emissions and others that arise out of
emissions, but developments will begin                                  to Naumann.                                                        extreme weather events, sea level
to impact almost all sectors, touching                                                                                                     rise, and other physical impacts of
on a wide range of regulation and                       With increasing regulation, companies                                              climate change.
                                                                            and their directors
                                                                            could face                                                     Climate change-related litigation might
                                                                            litigation and                                                 implicate a wide range of issues,
                              CLIMATE CHANGE:                               regulatory action,                                             including but not limited to potential
                                                                            says Bonnet.                                                   costs, fines and penalties, prosecution
                              WHAT ARE THE MOST SIGNIFICANT RISK
                                                                            While global ESG                                               of executives, impacts of valuations and
                              EXPOSURES ITS IMPACT CREATES FOR
                              COMPANIES?                                    reporting                                                      credit ratings and shareholder claims6.
                                                                            standards have
             Top six answers                                                yet to be agreed,                                              In total, there were 1,587 cases of
                                                                            national and                                                   climate change litigation in 37
                   Physical loss impact (e.g. higher
                                                                            regional “hard”                                                countries between 1986 and the end of
                 property damages due to increasing                66%      legal ESG                                                      May 2020, of which over two thirds
                                 volatility of weather)                     measures with                                                  were in the US (1,213), Australia (98),
                                                                            “teeth” are on the                                             UK (62), and EU (57), according to the
                Supply chain impact (e.g. business
            interruption or delays in receiving goods)  41%                 rise, Bonnet                                                   London School of Economics (LSE)7.
                                                                            explains.
                                                                                                                                           So far, no company has been found
     Operational impact (e.g. cost of relocating
                                        facilities)                 35%                                 “Climate change                    liable8 for climate change, although
                                                                                                        related-                           there are a growing number of cases
     Strategic market impact/transition risks                                                           regulations and                    filed against fossil fuel companies –
            (e.g. write-offs and early retirement of
       existing assets, decision to phase out fossil              32%                                   ESG requirements                   there are currently at least 40
               fuels, shift in consumer preferences)                                                    make it easier to                  ongoing climate cases worldwide
       Regulatory/legal impact (e.g. changing
       laws on environment/emissions, enhanced
                                                                                                        hold directors and                 against “carbon major” companies,
                                                                 31%                                    companies to                       mostly in North America, according
      reporting requirements, fines and penalties,
                 increasing prospect of litigation)                                                     account.                           to the LSE.
     Liability impact (e.g. directors and officers,                                                       Companies
        asset managers etc., held accountable for             26%
                               perceived inaction)                                                      closest to fossil                  “The development of climate change
                                                                                                        fuels will face the                litigation is uncertain, and cases to
                                                                                                        highest risk of                    date have largely been unsuccessful.
            Source: Allianz Risk Barometer 2021
            Figures represent the percentage of answers of all participants who responded (362)
                                                                                                        climate change                     But the stakes are high. The moment
            Figures do not add up to 100% as up to three risks could be selected.                       litigation and                     climate change litigation is successful,
                                                                                                        regulation, but                    there would be huge ramifications,”
                                                                                                        this is an issue                   says Bonnet.
        5
              erbert Smith Freehills, 25-Fold Rise In Climate Change Related Regulation Could Mean
             H                                                                                            7
                                                                                                              London School Of Economics, Global Trends In Climate Change Litigation 2020 Snapshot,
16           Businesses Are Facing Risks To Value And Reputation, Says New Report, September 26, 2019         July 3, 2020
        6
             UN Environment Programme’s Principles For Sustainable Insurance Initiative,                 8
                                                                                                               The D&O Diary, Climate Change Litigation Threats To Directors And Officers, November 9, 2020
              Ensuring The Climate Transition, 2020
CLIMATE CHANGE ACTIONS

ACTIVISM AND GREENWASHING                                                                                   business models are shifting, and

                                              Photo: iStock
                                                                                                            society will want to understand that
Changes in societal and generational                                                                        businesses are contributing to the
attitudes to climate change are also                                                                        solution to climate change, rather
influencing policy and regulation going                                                                     than being the cause of the
forward. For example, since 2019, there                                                                     problem.”
has been an escalation in the use of
litigation by activists and advocacy                                                                        Businesses need to be proactive in
groups seeking to advance climate                                                                           addressing climate change liabilities.
policies, drive behavioral shifts and/or                                                                    “The EU’s climate change and wider
create awareness and encourage                                                                              sustainability agenda will not be
public debate, according to the LSE.                           Businesses should factor climate change      postponed. Companies should start
                                                              regulations into overall strategic planning   thinking about upcoming requirements
Climate change activism has stepped                                                                         and changes in policy and regulation
up a gear, says Bonnet: “Campaigns                 EU leads the way                                         now,” says Naumann. “From a risk
have gone to another level in recent               on climate change                                        management perspective, companies
years, and are increasingly aligned and                                                                     need to consider potential climate
sophisticated. Groups lobby
                                                   regulation                                               change-related liabilities alongside
governments and pressure companies                 Europe is a front-runner when it                         physical and transition risks. By
to effect change, and they are not                 comes to climate change regulation.                      engaging early, companies will be able
afraid to resort to litigation.”                   At present, there are a number of                        to prepare for what is around the
                                                   key policies in development or due                       corner.”
For example, non-profit law firm,                  for implementation in Europe under
ClientEarth, has gained a reputation               the European Green Deal, which                           Businesses will need to factor-in future
for using legislation to hold companies            enshrines Europe’s greenhouse                            climate change-related regulation and
accountable. In September 2020, it                 emissions targets, and the EU action                     legal developments in their risk
secured a major victory by forcing the             plan for financing sustainable                           management and strategic planning,
closure of a giant coal plant in central           growth. In February 2021, the                            says Bonnet: “However, just including
Poland.                                            Commission also adopted a new,                           climate change in the risk register will
                                                   more ambitious EU strategy on                            not be sufficient. Businesses need to
Meanwhile, a number of current                     adaptation to climate change.                            use targeted data and analysis to
lawsuits claim that companies have                                                                          identify developments in climate
misrepresented the impacts of climate              “We are now at a tipping point                           change risks, regulation and litigation
change, or alleged “greenwashing”                  in Europe with the application                           and understand how they could
where companies make false or                      of first regulatory requirements                         impact their business.”
misleading ESG claims. A crackdown on              such as sustainable finance
“greenwashing” claims could also be on             disclosures and the taxonomy for
the cards in future with the Task Force on         sustainable economic activities
Climate-Related Financial Disclosures,             kicking in. However, we are just at
the US Securities and Exchange                     the beginning of the journey – the
Commission (SEC) and European                      integration of sustainability into other
                                                   areas, such as corporate governance
                                                                                                             Key EU level regulations:
supervisors looking into the issue.
                                                   or supply and value chains will                           • Sustainability-related disclosure
Companies that over promise or lag                 follow,” says Isabel Naumann,                                in the financial services sector
behind on climate change are likely to             responsible for Sustainable Finance                          (application in March 2021)
come under increasing scrutiny,                    Regulation at Group Regulatory
                                                                                                             • EU taxonomy for sustainable
according to Bonnet. “Companies need               and Public Affairs at Allianz SE.
                                                                                                                economic activities (application in
to ask themselves if promises made are                                                                          January 2022)
achievable and backed by appropriate
action. For example, what does it mean       political aspects of climate change.                            • Review of the Non-Financial
to be carbon-neutral? This will              However, keeping a finger on the pulse                             Reporting Directive (ongoing)
increasingly raise technical and             of the climate change debate will help
regulatory questions, as well as raising     companies anticipate future policy and
expectations for consumers and               regulatory developments.
investors,” says Bonnet.                                                                                     OUR EXPERTs
                                             “This is an issue companies need to
                                                                                                             Chris Bonnet
GETTING AHEAD OF THE CLIMATE                 keep on top of and to keep in-touch
                                                                                                             christopher.bonnet@allianz.com
MITIGATION AND ADAPTATION CURVE              with their peers, customers and
                                             suppliers about,” Bonnet says. “The                             Isabel Naumann
Companies will only have limited             boundaries of what is socially                                  isabel.naumann@allianz.com
possibility to influence societal and        acceptable in terms of carbon-based

                                                                                                                                                      17
BUSINESS CONTINUITY MANAGEMENT

SCENARIO PLANNING F
FUTURE DISRUPTIONS

                                         The Covid-19 global pandemic highlights the importance of business continuity
                                         planning for current and future operational disruptions. Good continuity
                                         management learnings – robust planning and honest supply chain de-risk
                                         assessments – help businesses better adapt when the next event arrives.

                                         Costing the global economy $375bn                                      the face of the global pandemic. This is
                                         per month1, Covid-19 has exposed                                       followed by ‘developing/alternative
                                         many companies’ reliance on their                                      multiple suppliers’ (45%), ‘investing in
                                         supply chains and weaknesses in                                        digital supply chains’ (32%),

              60%+
            of companies say improving
                                         business continuity management
                                         (BCM). A recent Covid-19 survey found
                                         that more than half of companies
                                                                                                                ‘intensifying supplier selection, auditing
                                                                                                                and risk assessment’ (31%) and
                                                                                                                ‘inventory/safety stock management’
                 business continuity     worldwide did not have a business                                      (17%).
             management is a priority    continuity plan (BCP) in place to offset
                   post pandemic         the impact of incidents such as the                                    There are not many positives to take
                                         current pandemic outbreak2.                                            from the pandemic but a growing
                                                                                                                realization that the impact of
                                         According to the Allianz Risk                                          globalization needs to be better
                                         Barometer 2021, which surveys more                                     managed and more resilient supply
                                         than 2,700 risk management experts                                     chains need to be built is to be
                                         about their top corporate concerns,                                    welcomed. Many companies have
                                         ‘initiating or improving BCM’ (62%) is                                 found that their contingency plans
                                         the main action companies are now                                      were overwhelmed by the rapid pace
                                         taking in order to de-risk their supply                                of the pandemic and changes in public
                                         chains and make them more resilient in                                 health measures over the past year.
                                         1
                                             The Independent, There‘s No Place For Vaccine Nationalism In The Fight To End The Pandemic, January 25, 2021
18                                       2
                                             Mercer, Business Responses To The Covid-19 Outbreak: Survey Findings, 2020
BUSINESS CONTINUITY MANAGEMENT

                                                                                                                        Photo: iStock
                                                                                                                                                THE 1 MINUTE DIALOGUE
                                                                                                                                         u C
                                                                                                                                             ovid-19 has exposed many
                                                                                                                                            companies’ supply change resilience
                                                                                                                                            and weaknesses in business continuity
                                                                                                                                            management

                                                                                                                                         u T he pandemic has added to existing
                                                                                                                                             climate, reputational and compliance
                                                                                                                                             pressures to rethink increasingly
                                                                                                                                             complex supply chains

                                                                                                                                         u S
                                                                                                                                             cenario-based continuity planning
                                                                                                                                            critically examines the company’s
                                                                                                                                            own set-up and supply change

FOR
                                                                                                                                            resiliency

                                                                                                                                         u Increased resilience of supply chains
                                                                                                                                             will help with insurability of supply
                                                                                                                                             chain exposures and help businesses
                                                                                                                                             react faster to market trends

                                                                                                                                        “What is clear is that the insurance
                                                                                                                                        industry cannot take away all the
                                                                                                                                        challenges companies face, but we
                                                                                                                                        can work with customers to identify,
                                                                                                                                        comprehend and mitigate risks in the
                                                                                                                                        supply chain,” says Varney.

                                                                                                                                        “AGCS’ global network of risk experts
                                                                                                                                        can review a company’s basic risk
                                                                           As Covid-19 took its toll on ‘business as usual,’            awareness and management, compare
                                                                         many companies found their contingency plans
                                                                        overwhelmed by the rapid pace of the pandemic                   risk management systems of different
                                                                                                                                        companies and identify approaches for
                                                                                                                                        further development. Scenario planning
 “One of the main property business                                 “The best way for businesses to                                     should be constantly updated and
 interruption lessons from the pandemic is                          approach these types of situations is                               tested, so it can be applied when
 the importance of an up-to-date BCP,                               through BCP scenario planning that                                  needed. It must be cross-functional and
 including having alternative suppliers                             challenges working environments and                                 integrated into a company’s risk
 available for raw and intermediate                                 supply chains under various                                         management and strategic processes
 materials,” says Thomas Varney,                                    eventualities,” says Varney. “Moving                                for it to be effective.”
 Regional Head of Risk Consulting                                   forward, a pandemic scenario should
 North America, at AGCS. “Supply chains                             be added to a company’s planning.                                   The pandemic’s impact on business-as-
 have been significantly impacted in many                           The ability to understand and                                       usual will be felt for a long time. It
 industries, resulting from manufacturing                           proactively handle potential business                               forced companies to depend on new
 plants having to shut down.”                                       impact scenarios is better resolved                                 or increased digital approaches, as
                                                                    when the crisis is not directly upon the                            travel and face-to-face interaction was
 The extent to which some supply                                    business.”                                                          discouraged and remote working
 chains came under pressure during the                                                                                                  increased proportionally – a 2020
 Covid-19 pandemic is illustrated by a                              In future, businesses will need to                                  Deloitte survey found that 48% of
 situation recently faced by automotive                             consider more and better scenarios in                               respondents had been forced into
 manufacturers. Due to a lack of                                    order to prepare for future disruptions.                            at-home working due to the
 semiconductors, many car makers                                    Identifying and understanding                                       pandemic3. However, new working
 were threatened with production                                    potential triggering events is a                                    scenarios also bring the potential for
 stoppages, delays in deliveries and                                significant challenge, but the central                              new disruption scenarios. The move
 measures such as shorter working                                   key to survival is quick response times.                            toward digital dependence and
 hours. There were no short-term supply                             The problem isn’t just traditional risks                            remote working has exacerbated
 alternatives. Many manufacturers had                               like fire or flood, but increasingly                                cyber and business interruption
 to cut production, delivering a further                            important intangible risks – something                              vulnerabilities from threats such as
 blow to an already hard-hit sector.                                Covid-19 has uncovered.                                             system failures, phishing, compromised
 3
     Deloitte, Cyber-Crime – The Risks Of Working From Home, 2020
                                                                                                                                                                                     19
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