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Aon chief executive Greg Case: resilience protects, but it also promotes growth

Aon chief executive, Greg Case: resilience protects, but it also promotes growth

As chief executive of a company whose raison d’être is helping firms make better decisions, Greg Case has wide-ranging knowledge and a nuanced perspective to share on resilience and its importance in volatile times

During this time of great uncertainty – marked by protracted pandemic-related risks, rising geopolitical tensions, expanding cyber threats and talent market upheavals – senior leaders are sharpening their focus on resilience. What makes some companies so much more resilient than others? How can resilience be built into organisations? How should we think about potential trade-offs between resilience and more immediately obvious benefits such as speed, efficiency and cost?

McKinsey & Company recently hosted a virtual leaders’ summit on building resilience in uncertain times. Among the guest speakers was Greg Case, chief executive of global professional services firm Aon. Greg is also a member of the company’s board of directors and serves on multiple boards externally.

He was interviewed by McKinsey senior partner Alex Singla, global leader of McKinsey Analytics and QuantumBlack.

Since you became chief executive in 2005, Aon has grown tremendously amid unprecedented levels of volatility. To what do you attribute Aon’s resilience?

Greg Case, Aon
Greg Case, Aon

Greg Case: Resilience is typically defined as a defensive capability that’s needed to ‘protect the house’. At Aon, we consider resilience a company-building capability, which is a fundamentally different orientation. We define resilience as the ability to take actions at scale that simultaneously defend and build the house, and we’ve seen many opportunities to do both during volatile times.

The most compelling and durable source of resilience is organisational. About 15 years ago, we recognised that our clients’ needs were outpacing our ability to innovate, so we took targeted actions to improve. This included making structural changes to operate as a truly global firm, which we call Aon United. Our organisational ability to deliver the best of Aon to our clients globally through this strategy has proven critical to our success. It’s helpful in times of crisis but, as we’ve learned from our clients, it also enables us to see opportunity where others may see only volatility and risk.

How do you respond to corporate leaders who question the return on investment (ROI) in resilience?

Greg Case: It’s natural to ask:’What’s the ROI on resilience?’ But, again, that philosophy assumes a discrete investment in resilience, whereas we take a broader view. If resilience drives opportunity in times of volatility, then it’s not ancillary to the core business. Fundamentally, resilience is the business. Having the ability to quickly take action at scale while others are struggling to mobilise opens doors. We certainly saw this during the Covid-19 pandemic when some – but not all – companies acted quickly to defend the house and, in doing so, also build the house by capturing opportunities that arose in the moment.

Leaders who are unable to link the two may be less resilient than they think in times of unexpected volatility. Those who clearly establish how resilience fits into their core business – and use that understanding to inform better decision-making – can most effectively protect and build their businesses.

Do organisations need to invest more in risk management?

Greg Case: Risk placement as a percentage of global GDP increased for 20 straight years from the 1970s to the 1990s. But, from the 1990s onwards, it has decreased almost every year, despite the proliferation of risks – from ageing populations and a higher concentration of people living in high-risk coastal areas, to more interconnected companies, and much more. On a proportional basis, risk management and investments are lagging increased volatility. Our mission is to break that 30-year cycle.

How did the pandemic reveal the resilience of Aon or the companies it serves?

Greg Case: Early on, we brought together more than 100 leading companies and organisations across 10 global cities from a broad range of sectors to examine the issues arising from the pandemic and learn from each other’s experiences. As the various regional coalitions met to discuss the crisis, the topic of work quickly became by far the highest priority for participants. And, as the meetings progressed, one core understanding emerged: returning to the way things were was not an option. As a result, we are engaging with clients in countless ways, both big and small, to help them build more resilient workforces in ways that were not possible before the pandemic.

You’ve previously observed that the pandemic has caused a great awakening among chief executives about the next generation of long-tail risks. What did you mean by this?

Greg Case: Within months of the first case of Covid-19, companies of all sizes and in every global region were confronting unprecedented volatility. This prompted many leaders to deeply consider, perhaps for the first time, the true implications of other long-tail risks. Climate risk, for example, has been on our radar for a long time, but the pandemic’s profound impact on supply chains laid bare what can happen when a massive disruption takes place.

Intangible assets, including intellectual property, are another category of long-tail risk that companies may be underestimating. Roughly 90% of the aggregate value of the world’s companies today is in intangible assets, yet there is little they can do to accurately value and then protect them. Cyber risk, which intensified during the pandemic, is another long-tail risk that likely warrants even more attention than many companies are currently giving it. Whereas these and other long-tail risks were primarily on the minds of risk leaders, Covid-19 has catalysed chief executives, chief financial officers and boards to question how to manage them more actively – a trend that was revealed in our report, A new approach to volatility: the importance of making better decisions.

How can leaders manage disruptions that may be low probability individually, but in aggregate are occurring more frequently?

Greg Case: Of the $5 trillion in economic losses from adverse events so far this century, only about 20% of that loss is insured. That’s the biggest gap ever and it’s growing. Every three or four years we’re seeing a once in a 100-year event, so we may need a new definition. Adverse weather events caused by global warming, for example, are becoming more frequent. Combine that with the possibility of future pandemics or a cyber attack, and the likelihood of a disruption – no matter what the cause – is increasing. This is challenging for the largest, most sophisticated companies, and even more so for middle-sized and smaller companies that have fewer options to prepare or protect themselves, but it starts with prioritising resilience backed by risk management strategies that proactively tackle volatility.

With regard to the climate crisis specifically, what role will insurers play in promoting resilience?

Greg Case: Mounting a resilient response when the next earthquake, flood or wildfire occurs takes a combination of public and private support. For example, the Pacific Alliance countries of Mexico, Chile, Peru and Colombia are experiencing more frequent and severe earthquakes than ever before, and have struggled to respond due to a lack of financial support. In 2018 they asked the World Bank for help transferring earthquake risk to the capital markets. The World Bank responded by issuing a catastrophe (cat) bond that provided $1.36 billion in earthquake cover. The cat bond attracted more than 45 investors globally, including insurance-linked securities funds, pension funds and reinsurers. Those responsible for overseeing the disbursements – to rebuild schools, roads, hospitals, and so on – have future climate resilience as a key criterion.

Having proven this approach to matching capital with risk works, how can we scale it to other countries and companies? How can we apply it, for example, to facilitate the transition of a company’s massive fleet from carbon-based fuel to electric, and with as little operational impact volatility as possible?

Certainly, insurers have a role to play, but they can’t do it alone. The industry’s balance sheet on aggregate is worth about $4 trillion compared with $150 trillion for pension funds, sovereign funds and high-net worth individuals. If we can mobilise that funding engine, then we can really start to activate the business transition to net zero and protect countries.

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