“How does Insurance Handle

a Crisis?”

Paul Howard

•What is a crisis?

•Can insurance offer any solutions?- Underwriting perspective;- Claims perspective;

•Contingency planning and creative crisis management;

•Client relationships & adding real value;

•Gaining competitive advantage by differentiation

What is a crisis?

•A crucial point / situation;

•An unstable condition in which an abrupt / decisive change is impending;

•A sudden change in the course of an acute disease towards either improvement or deterioration (medicine);

•The point in a story at which hostile forces are at their most tense state of opposition.

Perception

• Our view of the world based on our experience;

• Process:

- Observe;

- Screen;

- Organise;

- Interpret.

= Cycle of Sensemaking – make meaningful to you.

•How insurance deals with a crisis is an intangible asset (or Liability);

•Not easily quantifiable on a balance sheet but amongst the most important business decisions an organisation can make;

•The new 80:20 rule of Crisis management:- 20% what you do;

- 80% how you do it:

It ain’t what you do, it’s the way that you do it - that’s what gets results –

(Bananarama management consultants).

What distinguishes a crisis from an emergency or a disaster?

crisisemergency disaster

continuum

Underwriting Solutions?

• World Trade Centre & aftermath;

• Y2K;

• e-commerce;

• Employers Liability.

Communication

• Information theory model – Shannon & Weaver: SMCR:

Sender Message Channel Receiver

•Problems:-

- Noise, distortions, coding & decoding;

- More than a minimum required to convey intention;

- Assumes sender & receiver are very similar - ignores cultural differences.

BCPG Threat RadarAs at Tuesday, 10 December 2002

THREATS1. FFA JS Depot

Pickets

2 FFA Dairy Pickets

3. Nectar Launch

4. National Firefighters Strike

5. Military action in Iraq

6. Deteriorating situation in Northern Ireland

8. UK becomes an Islamic terrorist target

19.Hams Hall Start-up

20.Core Release 1

22. Airport Firefighter / security strike action

24. Sainsbury’s One

25. Transco Strike action

12

LEGEND

RED

High risk to

business operations

AMBER Medium risk to

business operations

GREEN Low risk to

business operations

ARROW

Predicted direction of

Threat / From last

position

3

4

5681

9

20 24

22

25

Is Insurance still relevant?

• Increasing number of modern business activities are uninsurable;

•Many threats to organisational well being are uninsurable e.g. Reputational Issues;

• Insurance is “counter-cyclical”;

• Perception: clients are being charged more for a product which covers less than it used to and less of what is important to organisations;

• Is most important crisis insurance faces, to show that it is still relevant – especially to large corporates?

Claims Solutions?

• Initial response usually good;

• Joined up response?

• Involve client?

•Lose interest after initial enthusiasm;

•Are lessons really learnt or is the specific client or sector penalised in a knee jerk reaction?

Contingency planning

•Scenario analysis designed to help plan for emergencies;

•Reduces uncertainty & complexity;

• “The only thing certain about the future is that the future is uncertain” (Handy)

•After event reviews are crucial but also need proactive approach.

Business Continuity

•Plan tested in a desktop exercise twice a year;

•Once a year full scale test involving senior management decision makers and selected key suppliers;

•Scenario based on a major threat to the business;

•Filmed and lessons learnt cascaded to the wider audience;

•Procedures amended if required.

Scenario Planning

•Avoids panic reactions;

•Blue Sky thinking leads to better quality decisions;

• Involving all stakeholders surfaces assumptions you are making and enables you to break out of “mental tramlines”

Benefits of involving stakeholders:• Social learning system;

• Collaboration;

• Common goals / beliefs;

• Informal structure;

• Based on trust;

• Avoids problems of “Groupthink”;

• Avoids costly mistakes;

• Faster problem solving;

• Adding value to customer relationship.

Critical success factors for revised crisis management

•Perceived business threat – clear link to a business priority;

•Long term thinking;

•Senior level involvement;

•Business champion;

•Willingness for business process change;

•Technical capability.

Barriers to effective crisis handling

•Lack of time to develop ideas;

•Lack of resources;

•Lack of suitably experienced / qualified staff;

• “Them & us” mindset – both internally and externally

Why is Creativity important?

•Creativity – something new or novel;

• “Quality without creativity is a dead end. You get better and better at doing something which doesn’t need doing” (Edward de Bono)

•One definition of insanity is doing the same things and expecting a different result.

•Creative swiping – acquire & adapt;

Clark’s law of Revolutionary ideas

Every new idea evokes three stages of reaction:

• It’s impossible – don’t waste my time.

• It’s possible, but it’s not worth trying.

• I said it was a good idea all along.

Effective Crisis Management

•Makes use of intellectual capital;

•Assists market position;

•Assists operations;

•Supports innovation;

•Supports organisational development;

•A true “differentiator” – therefore results in competitive advantage.

Successful outcome of a Crisis.

“it’s the end of the world as we know it

(and I feel fine) - REM

Unsuccessful outcome of a Crisis.

“Heaven knows I’m miserable now” – The Smiths