| By FA News |
| Buzzwords in risk management Resilience and sustainability are buzzwords in the 21st Century risk management environment, earning mentions in almost every presentation on the day. The phrase ‘inherent risk’ was topical too, having featured in a fast and furious ‘for and against’ panel debate moments earlier. The banking sector CEO took a playful approach in his opening remarks, stating that many of the risks encountered in South Africa circa 2024 were “outside of a business’ control” and therefore inherent. He then offered a refreshing update on the progress made by government and the private sector in addressing three strategic economical imperatives of crime and corruption, energy security and logistics and infrastructure. “As a country, as business, as risk managers, we have real agency,” Kallner said. “We are seeing sentiment change; we are seeing the kind of the fundamentals of the environment in which you operate change to the positive in a really meaningful way.” Acknowledging that more needed to be done, the CEO then embarked on an innovation explainer that will hopefully assist in navigating the country towards its long-term goals. An unlikely risk management tool “The companies that invest the most in R&D and innovation are also the companies that stand out for managing their risk,” Kallner said, commenting on the paradox of seeing innovation as a risk driver when the opposite was true. The 600-odd attendees at the Institute of Risk Management South Africa (IRMSA) event were challenged to introduce innovation alongside their often-formulaic risk management functions. This would assist in spreading innovation across critical business areas such as business models and the product and service universe. The presenter listed nine values that Discovery expects its employees to uphold. He opined that the ‘business astuteness and prudence’ value, which likely resonated with risk management professionals, actually carried less weight than the ‘innovation and optimism’ requirement. “Innovation is the biggest differentiator in terms of how we can manage risk objectively,” he said. The remainder of his talk set out six innovation principles that have given the diversified financial services business an edge over its peers going back 30-years. Your challenge, should you accept it, is to consider how these principles might take your advice or risk practice to the next level. Banks, insurers are not expected to lead The first lesson is that the impact of innovation is inversely correlated with expectations. “It is hard to meet the expectation of real innovation; and I would argue that where you do not have the expectation, the impact is much, much higher,” Kallner said. Innovation is a fact of life for firms in the automotive, information technology and pharmaceutical sectors; but there are few expectations for banks or insurers to lead the way. The result is that it banks and insurers get more bang-for-buck from their R&D spend, manifesting in areas like growth, market share and product differentiation. The second principle is that innovation should be purpose-driven and repeatable. The presenter illustrated this principle by describing the challenges in South Africa’s medical insurance market around the time Discovery Health started out. From its introduction, the Medical Schemes Act required medical aids to offer guaranteed acceptance and community rating, preventing them from applying the common sense practice of risk rating. At the same time, the South African population faced a high burden of disease and limited supply of doctors. The Eureka moment, described as “a breakthrough at a purpose level”, was the realisation that the challenge could not be met in any way other than making people healthier. As Kallner explained, “If it is good for us as an insurer, whether in health or life or short-term insurance, it is good for the client, and ultimately, for society as well.” This ‘value through better risk management’ mantra resonates globally, and has helped Discovery to create a business that serves over 40 million clients in over 40 markets worldwide. The triple payback from fixing potholes For a current example of shared value in action, the presenter described how the innovative use of telematics data had underpinned the insurer’s pothole fixing initiative. By fixing over 240 000 potholes in Johannesburg and surrounds, the business had created jobs while saving millions in damages claims across the insurance industry; protecting both insured and uninsured drivers; and benefitting society too. The punchline, greeted by spontaneous applause: “You can use breakthrough innovation to manage your risk and have better outcomes simultaneously.” Innovation should be profound and science-based, reads principle three. Ironically, it is thanks to innovations in areas like computer processing and storage, and data science, that financial services firms are empowered to seize on this principle. The bottom line is that an insurer like Discovery has access to over three decades of health, wellness and driver behaviour data which it can mine to drive innovation. For an excellent example of this, consider the ability to monitor health data to identify an insured who qualifies for a severe illness or disability claim before the insured is even aware of an issue. The fourth principle holds that innovation is infinite, recursive and expansive, allowing a firm to “compete at a higher level that is differentiated and sustainable”. The presenter illustrated this principle using the positive client outcomes from a range of activity-based rewards programmes in healthcare and short-term insurance. |
