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Editor’s Note: This is Part II of a multi-part series that will establish a vision and roadmap for a digital generation of enterprise risk management (ERM) and Insurance. Part I can be accessed through this link or others below.

As we discussed in Part I of this series, global mega-trends and technology are creating new risks for enterprises and new requirements for risk management and insurance. There is a gap between these fast-emerging requirements and the legacy solutions and siloed approaches currently used to address them. That gap is growing quickly and as it does enterprises are exposed to increasingly dangerous risks.

Insurance is not alone in this regard. Emerging technology, global megatrends, and tough issues and concerns are reshaping entire industries. The top concerns for today’s enterprises are:

• Reputational risk;
• Cyber attacks;
• Emerging technologies: artificial intelligence, blockchain, big data, smart phone devices, IOT;
• Global trends: smartphones, millennials, etc.; and
• Regulatory challenges from emerging technologies.

These concerns are all combining to create an environment of hyper-change and thus hyper-risk.

Reputation: In the End, That’s All You Have

Trust is the foundation of any business relationship and thus reputational risk is the top concern for many enterprise risk managers. The erosion of public trust in large enterprises can now turn into a reputational nightmare. Risks to an enterprise’s reputation can come from multiple sources and vectors:

• Data breaches
• Product failures
• Executive/board fraud, social embarrassment
• Third-party risks
• Supply chain disruptions
• Regulatory failures
• Fraud

Last year we saw Wells Fargo’s mismanagement in failing to address reputational risk issues early and effectively. These failures reinforced public perception of large banks as arrogant, uncaring and downright crooked, and compounded a reputation that was already poor. Wells Fargo ended up firing its chief executive as well as the head of its retail bank and withdrew its executive bonuses. The company also ended up paying $11 million for refunds and compensation tied to the account openings, $80 million for costs related to unwanted car insurance, $185 million for fines, and $142 million to settle a class-action suit. However, the biggest cost to Wells has probably been paid by its lower share price and its quarterly profits dropping 19 percent following the scandal.

Chipotle promoted itself as the company with a healthy, responsible supply chain, using only antibiotic-free, fresh produce distributed through a network of small, independent farmers. Over three months, however, the company’s reputation was severely compromised by food poisoning incidents that resulted in at least nine lawsuits filed by customers sickened at Chipotle locations. They were also served a subpoena as part of a criminal probe by the U.S. Attorney’s Office and the Food and Drug Administration’s Office of Criminal Investigations. Chipotle had to spend heavily on marketing and costly promotions to rebuild their shattered reputation with the public and stockholders. As a consequence, they reported their first ever quarterly loss, $26.4 million, with weakening same-store sales adding to a very negative outlook.

Summary

Global mega-trends and technologies are creating new risks for enterprises and new requirements for risk management and insurance. The gap between these fast-emerging requirements and the legacy solutions and siloed approaches currently used to address them is creating significant competitive opportunities for current insurance and upstart InsurTech companies. This gap is growing quickly, accelerating and exposing all enterprises to increasingly dangerous risks. The emerging risks we have mentioned above place new and changing requirements on enterprises and the ERM and insurance solutions that serve them. To meet these challenge, insurers must start building an interoperable innovation framework that begins to meet these challenges. In the next article, we will examine the risks of Cyber Attacks for ERM and Commercial Insurers.

Insurance Enterprise Risk Management: The Digital Generation