DIALOGUE GLOBAL RISK - Allianz Global Corporate & Specialty
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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
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
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
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
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
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
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
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
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
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
10ENVIRONMENTAL, 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 11ENVIRONMENTAL, 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
12ENVIRONMENTAL, 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
13CLIMATE 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, 2020CLIMATE 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, 2020CLIMATE 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, 2020CLIMATE 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
17BUSINESS 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, 2020BUSINESS 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
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