Under the extraordinary effects of COVID - 19, all players in the economic structure are preparing for their most efficient detective actions. As an initial reaction from the banking sector, ECB asked from the European banks about checking their business continuity plans and making quick amendments according to their gaps. A similar reaction to the insurance sector could be performed soon by EIOPA as well.
From a risk management perspective, now we are dealing with crisis management conditions. The exit plan of this period for corporate bodies is a Business Continuity Plan (BCP) which is a very small part of the whole operational risk management cycle and should be kept always live, even is not needed. This detail creates huge effects during crises and acts as the first line of defence for your economic body or company. As we saw during the last weeks, performing business activities with private sources like using personal households, internet connection, PC, etc. is a kind of putting BCP on the action with a limited scope. During a crisis that could affect the continuity of business, a company needs to define who should decide for applying BCP, which processes of the company should be continued, which internal or external sources should be used or consumed. Besides its unusual execution, BCP increases all types of operational risk incredibly. Home office practices increase misuse or loss of data, the regulatory body or company requirements about data security could be bypassed easily. Furthermore, if the company did not perform any simulation about the BCP application beforehand, many problems may appear during the implementation phase.
From a macro perspective, all steps in circles of a company could be classified as two main groups; preventive and detective actions. An effective risk management environment is able to shape decision-making processes throughout the company within terms of appetite, thresholds or written procedures, etc. As we are experiencing now, companies which have effective internal systems (risk management, compliance and internal control) will be affected at minimum during these extraordinary conditions. Anyhow, if efficiency of internal systems appears only on written documents and could not find any trace on top management, responses of corporate body remain reactive and a leaf on the water cannot predict what is coming next!
Last but not least, I found transformative consequences of COVID - 19 similar with effects of climate change on insurance industry. Both are transformative, disruptive and push for scaling up the industry with other principals. As the main difference, climate change is not extemporary as COVID-19 virus. We will touch the other part of the "Virus Effect" on the insurance value chain in the following days.
About the author
Now, in Munich-Germany, she is studying on post-PhD studies about financial deepening and mentoring start-up companies in insurtech. Moreover, she writes monthly articles for the most popular Turkish insurance portal and Fortune Turkey insurance edition. In her free time, she is a passionate charity runner and enjoys skiing as a qualified skier.
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