Airmic sent top-level Brexit guidance to members EU within hours of the referendum result being known, commenting that the decision “must now surely feature on the list of principal risks for most organisations.” Although the Leave vote is likely to affect the work of all types of member, whatever their title or role, the association believes that the challenges can be handled within a conventional risk management framework. Indeed, Brexit is an opportunity for members to step up to the plate and demonstrate their relevance and the scope of their skills.
“The principles of resilience outlined in our research report ‘Roads to Resilience’ are entirely relevant to the current situation and will serve organisations well,” said deputy CEO Julia Graham, who issued the initial Brexit guidance.
Specifically, Airmic’s guidance recommends five steps:
1. Identify areas of the business that may be impacted
2. Establish ownership using cross functional groups
3. Prepare a clear plan for short term market risk
4. Consider the unknown using a range of scenarios
5. Brief the Board on what they need to know and where decisions are required
If Brexit is to have any impact on insurance purchase, the effects will only be felt in the longer term. Until then, members will be dealing with the same insurers as before under the same regulatory regime. It is too soon to say what the longer-term consequences may be for the insurance market, but buyers will have plenty of time to react.
Airmic will, of course, be monitoring developments closely and continuing to brief its members as appropriate.
Before the referendum, the CBI indicated that only 50% of FTSE companies had made contingency plans for an exit vote and that there was a significant variance in levels of preparedness between sectors, with financial services well advanced and other sectors with some way still to go.
The definition of risk typically used by organisations of ‘the effect of uncertainty on objectives’, recognises organisations often have to deal with risks they have little knowledge of by way of hard fact – Brexit is no exception.
The Financial Reporting Council (FRC) define a ‘principal risk’ as a ‘risk or combination of risks that can seriously affect the performance, future prospects or reputation of the entity. These should include those risks that would threaten its business model, future performance, solvency or liquidity’. Had this not already been the case before yesterday’s momentous referendum result, the risks associated with ‘Brexit’ must now surely feature on the list of principal risks for most organisations.
At a Brexit round-table discussion for Airmic hosted by AIG May and attended by the CBI, these practical Brexit risk management steps were suggested:
1. Identify areas of the business that may be impacted
2. Establish ownership using cross functional groups
3. Prepare a clear plan for short term market risk
4. Consider the unknown using a range of scenarios
5. Brief the Board on what they need to know and where decisions are required
A priority for organisations today is the creation or refinement of internal and external Brexit communications plans and the clear allocation of responsibilities for managing these.
As with any risk that might affect the whole organisation, Brexit is an enterprise risk and the potential impact should be broken down by considering different areas of the business and the relevant risks including people, sales, regulation, law, finance, information, technology and insurance.
These steps embrace the five principles of the resilient organisation outlined in the Airmic report ‘Roads to Resilience’:
1. Risk radar: the ability to anticipate problems and see things in a different way will help an organisation develop an early warning system and be able to seize new opportunities.
2. Resources and assets: well-diversified resources and assets provide the flexibility to respond to opportunities as well as adverse or changing circumstances.
3. Relationships and networks: risk information flows freely throughout the organisation up to directors to prevent the ‘risk blindness’ that afflicts many boards.
4. Rapid response: capability that prevents an incident escalating into a crisis or disaster because people and processes are in place to quickly restore things to normal.
5. Review and adapt: learn from experience, including near misses and make the necessary changes and improvements to strategy, tactics, processes and capabilities.
According to the Association of British Insurers (ABI), uncertainties to be addressed by the commercial insurance sector will include those which revolve around consultation on regimes such as Solvency II, MiFID, Freedom of Establishment and Freedom of Services. As well as negotiations with the EU, there will need to be strong diplomatic resource dedicated to prioritising trade deals with US, India, China, and Turkey with a strong focus on financial services. “The financial services industry will be keen to retain access to skilled labour in whatever system ministers agree”
The International Underwriting Association (IUA) commented: “The London insurance market is resilient and well-positioned to respond to the result of the referendum on the UK’s membership of the EU. The free trade benefits of EU membership have been vital in maintaining London’s position as a global insurance hub and are highly valued by IUA members. This is true both for insurers headquartered in the UK and those international firms that use London as their centre for European business”
