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Pandemic offers enterprise risk management warning

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The coronavirus pandemic has highlighted the need for insurers to review enterprise risk management frameworks and guard against complacency, AM Best has warned.

The ratings company says enterprise risk management has evolved rapidly over the past decade but COVID-19 has shown weaknesses in the identification, measurement and management of risk.

“Lessons learned from the past and by this pandemic should equip companies to better understand their exposures and adopt even more robust risk practices in the near future,” it says in a new report.

“Complacency can be viewed as cone of the factors that can lead to the downfall of a company’s risk management framework.”

AM Best says conventional wisdom had led most observers to expect the greatest impact of a pandemic would be to the life and health sector, but now it’s likely that property and casualty insurers and reinsurers will feel the brunt of the current event.

In May, Lloyd’s estimated combined underwriting and investment loss for the industry as a whole of up to $US203 billion ($285 billion).

“With uncertainty over the scale and duration of the pandemic and any lockdown measures, the financial impact could be well in excess of this,” AM Best says.

“How organisations use lessons learned from the pandemic to strengthen ERM frameworks against such ‘black swan’ risks will be a key area of interest to AM Best over the coming months.”

The ratings company says while the insurance industry is well capitalised, the pandemic will affect balance sheets and operating performance to varying degrees.