At the recent Aon Insights Series virtual event in Asia, Greg Case, CEO of Aon, discussed insights from the novel coronavirus (COVID-19) pandemic, the new reality of long-tail risk, and how Aon’s once-in-a-generation combination with Willis Towers Watson will better support clients as they navigate challenges today and in the future. Sandeep Malik, CEO of Aon’s Asia Pacific region, led the session.
Learn more about the Aon Insights Series, and read more about the combination of Aon and Willis Towers Watson at “Helping Clients Navigate an Increasingly Complex World.”
When was the last time in global economic history that every single company in the world, big, medium, and small, stood up and addressed a single risk at the same time in a way they never had before? That’s what’s happened. Every company in the world is reacting to this unprecedented challenge.
One phenomenon we have found more and more is that clients are asking questions about long-tail risks – and we are experiencing that firsthand through our daily conversations as well as with our Work, Travel and Convene Coalition efforts. I can’t begin to tell you how many CEOs I’ve been connecting with, all asking similar questions. They are focused on areas like climate change, for example, or cyber attacks, or the health-wealth gap.
While dealing with the immediate challenges of the pandemic, this situation has raised the specter of long-tail risk in a way that has never been done before. And I believe this is going to last into the next century.
Back in the 1970s, a company’s value was primarily connected to their tangible assets such as physical plants and equipment. The value of patents and trade secrets was perhaps a quarter of a company’s value. Today, that’s shifted tremendously. Intangible assets, such as intellectual property, comprise approximately 85 percent of the value of the S&P 500.
This trend is only going to intensify. More importantly, risks for intangible assets cannot be addressed in the rear-view mirror because there are no historic models. We need to use data and analytics to better understand the future risk and create models that also address future opportunity.
All of our clients in the audience live this every day. And the fact is, we don’t have complete solutions yet. If you think about the entire risk market as it relates to cyber, it’s measured at $6 billion in U.S. dollars at a premium level. But cyber risk could cause billions, if not trillions, in losses.
This is another area in which data and analytics helps us understand the root cause of risk such that we can apply capital to reduce volatility, and why we continue to invest in this area.
The companies that get this right, or at least have a plan in place, are far better off. Consider this: we saw research showing that, of the 36 significant cyber events that happened over the past five years, the impacted companies that had comprehensive cyber plans in place generated 40 percent better shareholder returns after the event took place. So, the stakes couldn’t be higher, and the requirements to address the challenge are just fundamentally different than what we’ve done historically.
Our industry has massive amounts of data. But we’ve never translated that data into information. And we haven’t translated the information into insight. Our view is that we’ve got to find ways to do so in order to ultimately change outcomes.
Looking at past experience to predict future volatility is no longer feasible in a highly complex world. We need to build predictive models, with forward-looking algorithms to address the impact of long-tail risks. We need to help clients better understand the nature of emerging severe risks, have better insights into the universe of those risks and ultimately reduce their cost by providing new insights into their frequency and severity.
As a result, we will help companies create and protect value in the face of increasing complexity.
We have a shared commitment and are dedicated to helping clients meet increasingly complex challenges. We also have complementary solutions, capabilities, skill sets and expertise. Our combination will provide us the ability to support clients in ways they’ve never been supported before, and in many respects, in our view, set a new standard of client leadership and innovation that will defy traditional categorization. And as a result, we will have a critical seat at the table, advising clients on issues that have traditionally been left unmanaged.