The COVID-19 pandemic and the economic effects of lockdowns have remade the business landscape.

Along with increased cyber risks while staff work from home, many businesses are undergoing restructuring and cost-reduction processes, all of which are grounds for a risk review.

Jarrod de Pont, senior business development broker at Crombie Lockwood insurance brokers, says a risk review involves an assessment of the business, its industry sector and the main risk exposures it faces.

He adds that it should also involve a discussion about the firm’s plans and priorities, internal risk management practices and the use of insurance as a tool to transfer risk. It’s also important to assess the business’s ability to sustain unbudgeted losses.

As lockdowns in Auckland and Melbourne demonstrate, business interruption has become a risk that’s key for firms to address.

“COVID-19 means businesses have changed. What’s important to the business is likely to have shifted and plans and priorities have had to adapt to the new environment. Going through a risk review means business owners will have a far better understanding of new and existing risks and how they should be managed,” de Pont explains.

“Going through a risk review means business owners will have a far better understanding of new and existing risks and how they should be managed.”

How to start a risk review

A risk review starts with a discussion about the most severe risks the organisation faces. After the business understands the risks that could have the biggest impact, it’s vital to explore risk management. Disasters do happen and unexpected liabilities can arise.

“Talk through different scenarios and put in place business continuity and disaster recovery plans. In addition to the potential financial loss, think through any costs you’d have to incur and steps you would need to take to run at full capacity again,” de Pont advises.

“Some businesses may need to subcontract some activities to a competitor or incur increased labour costs; some may need to relocate. Others may need to make redundancies to reduce expenses. It will be different for every company.”

Professional indemnity

Professional indemnity is another risk businesses must address, especially as insurers are being selective about the risks they are prepared to cover.

Says de Pont: “A risk review in this space involves developing a full understanding of the scope of advice and services the business provides, as well as any insurance cover the business is contractually required to hold and the extent of the risk the business is prepared to take on itself.”

Look at cyber risk, too

Cyber risk is another serious issue. One estimate published by the Reserve Bank of New Zealand suggests cyber incidents cost about NZ$104 million a year for the banking industry alone.

Remote working arrangements during the pandemic have presented new opportunities for cyber criminals to target businesses, particularly with ongoing trends around phishing scams and social engineering (where scammers use psychological manipulation to trick users into making security mistakes).

It’s important that businesses consider how a cyber-attack could interrupt the business, what it could mean from a financial, time and reputational damage perspective, and the steps required to recover from one.

“When you’re doing a cyber risk review it’s also critical to consider liabilities to suppliers or customers following a cyber breach. In New Zealand, upcoming changes to the Privacy Act should also be taken into consideration when doing a cyber risk review,” says de Pont.

Businesses that take a thorough approach to doing risk reviews are ultimately in a better position to make decisions about risk management and to overcome hurdles as they arise.

Find out more:

Talk to Crombie Lockwood’s CA ANZ dedicated insurance brokers to get your insurance sorted.
Call 0800 435 568
Email [email protected]
Go to crombielockwood.co.nz/charteredaccountants