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Internal data are rewriting technology, media and telecommunications companies' risk management playbook

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By Sara Benolken | July 12, 2019

By using internal data, technology, media and telecommunication (TMT) companies can seize competitive advantage and find the opportunities in arising challenges.

Conventional risk management practices often struggle to match the speed and magnitude of change TMT companies experience. But by using internal data TMT companies can seize competitive advantage and find the opportunities in arising changes.

The new playbook

TMT companies are taking a fresh approach to risk that more closely links risk management to broader enterprise objectives. Internal data — the same data that support TMT growth and innovation — make this new risk management playbook possible.

Here’s how it reads:

  • By definition, new risks often lack the historical claims data that the insurance industry typically gathers for risk modeling, product design and pricing, and predictive analytics.
  • This data gap is increasingly filled with internal data that TMT companies routinely compile in their interactions with customers, business partners and employees as well as regulators and other entities.
  • Flush with data, TMT executives and insurers can more accurately define risk tolerance and apply hedging techniques that deliver competitive advantage and enterprise buoyancy while covering known and unknown risks.

A fresh look

Risk managers are increasingly using internal data as they strive to go beyond meeting regulatory benchmarks or meeting the basic requirements of liability coverage. Increasingly, they’re focused on identifying unknown risks and developing ways to build an index and hedge those risks differently.

TMT companies are taking a fresh approach to risk that more closely links risk management to broader enterprise objectives. Internal data - the same data that support TMT growth and innovation - make this new risk management playbook possible.

This evolving view of risk includes strategic missteps and disruptive technologies that drive revenues and leave companies vulnerable to new competitors. In effect, a new risk management context has been created for exposures surrounding digitalization and interconnectivity, the internet of things, artificial intelligence, regulatory uncertainty and, increasingly, workforce needs and expectations.

New times, new questions

Risk managers’ fundamental questions have changed. The bigger question, “What must we do to ensure the future buoyancy of our company?” has replaced the more traditional query, “What are my risks, and how do I manage them?”

Framed this way, the answers can be surprising. In my conversations with TMT executives, a common answer is not risk per se. They are far more likely to cite the risk of failing to meet customer delivery expectations. When risk is expressed this way, risk management may take different forms for, say, intellectual property and data security – or acquisition strategies.

It assumes the mantle of boosting business prospects and building organizational resiliency by better leveraging internal data and insurance expertise. It is different from enterprise risk management.

A new resiliency

This resiliency doubles down on hiring, retaining and effectively deploying an energized workforce. It reflects a corporate culture that aligns performance with business goals and accommodates the tricky cross-cultural challenges associated with integrating two different company cultures.

In effect, a new risk management context has been created for exposures surrounding digitalization and interconnectivity, the internet of things, artificial intelligence, regulatory uncertainty and, increasingly, workforce needs and expectations.

Sara Benolken

TMT Global Industry Leader

And this flexibility recognizes emerging risks. For instance, in a 2018 ESI ThoughtLab study, co-sponsored by Willis Towers Watson, a majority of respondents pointed to untrained staff as the greatest cyber risk to their business. Yet staff training is ranked among the categories to have made the least progress.

What a list of enterprise-threatening exposures will not include is a specific, more traditional concern like a fire or natural catastrophe and “slip and fall” exposures. These conventional exposures are real enough, but are often self-insured within the company’s risk appetite and not seen in the same way as a threat to a supply chain, gaps in the workforce or the failure to innovate.

This demand for new approaches reflects an industry that depends on gathering and using data as much as any insurer. The industry has also become highly effective at interpreting and applying the data. The same conceptual approach that enables a media company, for example, to anticipate the buying interests of a consumer can be applied to the development of risk models and predictive analytics.

Rethinking risk tolerance

We are finding new ways to establish risk tolerances with TMT companies and to correlate risks that haven’t been correlated, as with contract liability and pension liability. At the same time, the risks can be assessed, monitored and managed more effectively as both internal and external data is deployed to hedge risks.

Insurance markets have embraced this new approach and readily use TMT internal data to complement insurance-industry data. Insurers are finding new ways to better correlate information on their portfolios. We are seeing a lot of insurer creativity in trying to solve problems unique to this sector, not the least of which is leveraging data in multiyear deals on a global scope in such areas as critical contract risks.

The ability to use internal data, in particular, is a game changer. For the TMT industry, data connect the dots to accurately identify, prioritize and manage risk to protect consumers and business partners, assets and profits.

Author

Global Industry Leader, TMT Industry

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