Volatile geopolitics to foment regulatory change – Aubert

Populist trends and volatile geopolitics are going to transform the regulatory environment in Europe within a few years, according to Nicolas Aubert, head of Great Britain at Willis Towers Watson.

“The volatility is going from bad to worse,” Aubert told StrategicRISK. “It’s not coming from the usual sources, like Iran or North Korea, instead it’s the Brits with Brexit and the US with Donald Trump, and that is redefining political risk.” 

New splits across political and societal lines and left cross-border corporate entities navigating unchartered territory, he suggests.

“The Brexit referendum vote has transformed the way the UK thinks and the way the UK behaves. There is no longer the same clear separation across parties and across society,” said Aubert. “This has profound influence in the way people are trading.”

The EU will have to rethink its regulatory landscape and its approach to rule-making, Aubert thinks. “One of the reasons for Brexit was a significant popular perception that the EU was overruling a lot. In return, Brexit has created new situations that were not foreseen and for which there are not clear answers.”

He makes the point that the EU 27 have maintained different national approaches to regulating within the EU, which will in turn mean differing approaches after Brexit among the different EU national regulators. That in turn will force the EU to regulate differently, Aubert thinks.

“Whatever is going to be the landing on the 2019 Brexit date is going to be a very temporary landing. I strongly believe that the regulatory environment will change within two to three years’ time,” Aubert said. “At EU level they will want to create a better consistency in approach and stronger robustness in the system.”

Regulators’ conflicting priorities between creating a safe environment and a nimble one for companies will define this challenge. “At present their incentive is towards safety,” Aubert added.

People versus ERM

Companies have historically managed their people very differently to their risk, Aubert suggests, the latter through enterprise risk management (ERM) and insurance as risk transfer. He thinks this is changing.

He notes that when Willis and Towers Watson merged in 2015, the CEO of a major client was initially keen to keep relationships as they were between insured, broker and insurers, keeping the same stakeholders talking as they had previously.

“Eighteen months later, that company organised a global tender, which brought in a totally different perspective,” said Aubert. “Fortunately, we won that tender and added to what we did in the past.”

The shift to align people risks, largely managed by HR, with ERM means not just bringing together insurance relationships, he suggested. It also means a shift in how risk management and risk transfer partners consider human behaviour within risk management. Willis Towers Watson is making this a major focus, Aubert suggested.

“Risk tends to have a focus on the hard data of event probabilities, looking at the magnitude and frequency of exposures, but we know that those important incidents are impacted by people’s behaviour,” he said.

Acting as broker and risk advisor, he emphasised the “century of data” on employee behaviours, surveying client employees and advising on skillsets, informing on how staff behaviour – morale, talent management, rewards, incentives, and attention to detail – gets affected within the changing risk environment.

“From that we get an incredible wealth of data on human behaviours,” said Aubert. “Cyber risk, for example, has been perceived as a technology risk, but the key issue is how employees behave in front of cyber exposure.”