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July 1, 2020

How Risk Managers Must Adapt to COVID

Summary:

To modernize at the scale and speed required, ​"low-code" application development tools should be incorporated within the enterprise.

Photo Courtesy of Pixabay

Risk managers who specialize in catastrophe planning and pricing are coming to grips with the idea that the financial cost of today’s pandemic will dwarf last decade’s​ ​historic​ losses from natural disasters and cyber hacking. According to researchers​, insurers kept pace last decade, saving lives and mitigating the economic hit, through increased use of data analytics and technology in risk modeling and claims processing. Today, the global scale of the pandemic’s economic fallout makes it more urgent for insurers to adopt and upgrade their digital enablement strategies quickly.

But, given the industry’s large base of cumbersome legacy systems, insurers notably​ ​lag behind other market sectors in adopting these much-needed innovations. To modernize core risk management systems and future-proof policy underwriting processes at the scale and speed required, ​experts​ say low-code application development tools should be incorporated within the enterprise.

“Low-code”— a visual development approach for building software using drag-and-drop components that is transforming the way applications are built — has been​ ​vetted​ by analysts as a powerful and effective means to reach a strategic end. For risk managers, that goal is to jumpstart the targeted use of next-generation capabilities, including cloud-based software deployment, artificial intelligence and augmented reality/virtual reality, all of which can be integrated into legacy systems with low-code tooling. Each has a specific way of empowering lean teams of specialists to handle the coming spike in claims, sort through market confusion, conduct complex tasks remotely and assess new sources of risk, while relying on core systems to maintain daily operations.

How Low-Code Bridges the Gap

First, a robust, low-code development platform enables a diverse talent pool of business experts to collaborate with IT teams and coding professionals. This approach captures the knowledge, expertise and iterative feedback of business-focused experts throughout the entire software development lifecycle, enabling quick deployment of customized, targeted software for web and mobile use.

Second, the underlying architecture of low-code platforms prioritizes integration, connectivity and openness. This enables enterprises to extend their digital capabilities with next-gen innovations while keeping their legacy systems’ core clean and secure.

Here are four aspects of technology enablement that empower risk managers to handle newly scaled-up demands and position the enterprise for success in the “new normal.”

The Cloud Enables Resilience

Compared with other business verticals, the insurance industry is late to adopt and fully leverage cloud-based software deployment. A 2019​ ​Deloitte survey​ on insurance trends found that nearly half of all respondents — 48% — were comfortable with a three-year time frame to adopt cloud technology.

But pandemics have a way of rewriting the rules. Today, risk managers are working remotely and require access to data and workflow processes often managed on mainframes. More than one insurance firm recently experienced operational delays when its data centers were hit with connection challenges. Ops teams were not allowed to go onsite to restart these systems until state officials modified their shelter-in-place orders.

In contrast, cloud-based operations are highly resilient. By design, the cloud enables business continuity from small and large interruptions, with a rolling system of global availability spread across geographically dispersed locations. Cloud-based operations today play a vital role in enterprise business continuity, including an insurer’s own disaster recovery strategies.

The low-code platform is cloud-native, offering the security of housing systems remotely and enabling seamless workforce access from anywhere. Regardless of what triggers a systemic shutdown, cloud-based systems will mitigate the impact.

See also: Where Were the Risk Managers for King’s Landing?  

Multi-Cloud Deployment Options Add Security

The majority of insurers have delayed cloud adoption due to data security and regulatory compliance concerns. To date, many firms still place their trust in on-premises data centers. However, cloud providers have evolved their product offerings to meet a wide range of enterprise cloud deployment strategies.

Companies requiring maximum security can adopt a fully private cloud model, or a hybrid model with the ability to “burst,” moving things to the public cloud when disaster hits or when demand spikes. Risk managers should also consider that the major cloud providers have the resources to hire the world’s best security engineers, a valuable and cost-efficient means of supplementing internal security capabilities.

AI Accelerates and Automates Contract Liability Assessments

As closures, cancellations and supply chain disruptions affect businesses, policyholders will file more and more claims. Risk managers also face uncertainty from mounting legal challenges, as underwriters are pressured by state governments and organizations to use business continuity policies to cover losses from government mandates to shelter in place, overriding existing contracts.

Business continuity policies are highly complex legal documents. Enterprise legal teams can quickly run out of bandwidth to evaluate contract liabilities triggered by the pandemic. While it is incumbent on brokers and underwriters to analyze existing contract language to map out covered risks and exclusions during these extraordinary circumstances, they need help to get it done accurately and in a timely fashion.

Applications built with low-code tools can integrate back-end systems with AI and natural language processing tools to review and flag contract language and risk mitigation strategies to ensure proper coverage. Here again, collaboration is key. Input from risk managers, executives, legal experts, process executors and IT professionals is needed to map out a firm’s current level of risk exposure, evaluate its preferred risk appetite and adjust strategic planning. Because it employs a visual “language” understandable by both technical and non-technical personnel, low-code is a powerful collaboration tool for conceiving, building and deploying digital solutions that address the massive disruption triggered by the pandemic.

Quality Assurance and Training Can Be Digitized

The limited number of risk management specialists is a challenge for the industry. Their ranks will never be large enough to thoroughly execute the tasks of onsite assessment and analysis, especially during and in the aftermath of a pandemic.

Risk managers should already be working with a checklist of qualitative items, including operational risks and associated controls, plus event and escalation triggers for risk identification and measurement. Too often, these essential processes are paper-based or stored in Excel documents. One solution to streamline these processes would be a customized mobile application combining a digitized checklist with a time-stamped photographic inventory of a plant or facility. Such an application would also improve training, documentation and knowledge transfer when new risk managers join the team.

See also: 3-Step Framework to Manage COVID Risk  

With current restrictions on business travel, the case for augmented reality tours through plant operations and factory floors makes economic sense. It may sound futuristic, but low-code developers have already integrated augmented reality into warehouse management tasks, insurance claim workflows and even cancer detection by radiologists. Similar capabilities could be leveraged by the risk management industry to confirm a range of safety standards and to analyze visual information that may require a specialist.

Collaborative Digital Initiatives to Power in the New Decade

With revenue taking a big hit, it’s key to remember that risk and recovery are two sides of the same coin. To speed the recovery process, risk professionals must help the enterprise understand the risk profile of every potential customer and reduce the overall risk profile of the organization.

Low-code application development in the cloud, along with AI, AR and other ascending technologies, can bring visibility to otherwise hidden relationships and liabilities, while ensuring that data is understood, available and actionable Risk managers and C-suite executives need to champion innovative technologies that can scale up an effective response and protect the bottom line, speeding the pace of digital adoption from ​later​ to ​now.

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About the Author

David Kuhn, insurance technology and digital business strategy expert, has been working with companies for the past 20-plus years to ensure they achieve strategic goals.

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