INNOVATION’S ROLE IN A HIGHLY VOLATILE WORLD
INNOVATION’S ROLE IN A HIGHLY VOLATILE WORLD
One of the long-term impacts of the COVID-19 pandemic experience is that companies have fundamentally changed the way they look at risk. Risks are more interconnected, so the impact is more profound. For example, increased weather events and supply chain disruptions are happening more frequently and having a greater impact on economies and communities. These forms of volatility used to be on the horizon, but now they’re on our doorstep. And, with increased interconnectivity, it’s not just about the specific risk to your business but how it’s connected to a series of risks over time – a weather incident damages roads, disrupts transport, slows down supply chains and impacts the ability to bring critical goods to market. These risks have far-reaching impacts and, more than ever, understanding that interconnectivity and preparing for it is critical.
Because risk and volatility are so interconnected, businesses need to take an entirely different approach. The pandemic has completely altered the CEO agenda. Climate, Pandemic, Intellectual Property (IP) — these are risks that have far reaching impacts but also present opportunities. Our research shows that CEOs are now more willing to address the nature of these risks. It is our responsibility at Aon to ensure we are providing our clients with the best information, analytics and expertise possible so that they can make the best decisions for their business.
To successfully address these new forms of volatility, we have to create better access to new forms of capital. The capital across the balance sheets of all the insurers in the world is about $4.5 trillion. That’s an absolutely critical partnership, but we also need to connect with other sources of capital, whether it’s in pension or sovereign funds, which could open up the window to the better part of $150 trillion. So, magnifying that $4.5 trillion to $150 trillion with the mission of matching capital to risk, to reduce volatility as companies take action to do things like move to net zero or address these other forms of volatility is a tremendous opportunity.
Capital is the lifeblood of business and society and its multidimensional nature can unlock new sources of value and protection. For example, we help clients access capital markets using collateral backed by their IP, through our Intellectual Property Capital Market Solution.
One recent example – a first of its kind – involved a client using its IP as collateral to borrow more than $100 million from a lender, with the value of that collateral insured based on a collateral protection insurance policy. The policy – and the ability to access this capital – was made possible using valuation tools that our IP Solutions team has developed. With our innovative approach, the client raised additional capital to grow their business without diluting ownership. This is a great example of how we
are addressing unmet client needs.
Another example of innovation at Aon is our use of new tools – artificial intelligence, data, analytics and advanced technology — to create predictive models that power solutions that previously did not exist. Aon’s 2021 Global Risk Management Survey identified Disruptive Technologies as one of the most underrated risks in today’s environment. However, as the COVID-19 pandemic has accelerated technological advances in some industries, this may be an opportunity. In one example, we helped more than 200 Sri Lankan smallholder paddy farmers who are at risk of losing their crops due to extreme weather by partnering with Oxfam in Sri Lanka and Insurtech start-up Etherisc to launch a blockchain based platform that delivers micro-insurance. Combining data and insights alongside predictive models and forward-looking algorithms will allow us to better inform and better advise organizations. In a world of uncertainty and risk, AI and machine learning are powerful tools to support innovation that addresses the risks of today and tomorrow. And it is enabling us to create solutions for markets and clients that previously had no place to turn.
There really needs to be a general shift in mindset around being prepared for risk and having the data and analytics, as well as the expertise, to make better decisions on how to avoid or mitigate the risks organizations face. We are at an inflection point where businesses are not only focused on overcoming the current challenges we are facing but shifting to think about other long-tail risks and how to prepare for them. As leaders look at the future of their businesses in an increasingly volatile world, the pandemic experience continues to reshape their views of risk and sharpens their need to make better decisions. This experience has given leaders the insight they need to start understanding the dynamics of longtail risks, realizing the importance of being better prepared and giving them the confidence and certainty they need to make better decisions.