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Tech industry risk study: where do tech companies go from here?

In many ways, ‘essential’ has come to define the pandemic world. Essential jobs. Essential connections. Essential services. From healthcare and first responders, to delivery drivers and supermarket staff, the world learned to appreciate the people and services that keep society functioning.

How tech supported the pandemic

Since the pandemic began, technology has been ‘essential’ to enabling global responses and recovery. Video conferencing has allowed business to continue functioning and people to maintain connections. Bandwidth and wireless technology has supported employees working from home and enabled students to attend classes from the kitchen table. And people have embraced streaming new films, receiving treatment via telehealth appointments, and ordering takeaways instead of going out on date night.

Even before 2020, the economy was quickly moving toward a digital transformation. Technology now enables and drives nearly every aspect of business and society, driving strong revenue growth for the industry. But it has also created complex risks, many of which have been further complicated by the pandemic.

Marsh’s 2021 global technology industry risk study

Marsh’s 2021 global technology industry risk study explores how technology’s ubiquity is accelerating risks for the industry and end users. When technology fails today, it’s not just an inconvenience; it can be a devastating loss to individuals, businesses, and society. An outage could mean a child misses school, a restaurant can’t take orders, a call centre can’t serve customers, or a hospital may not be able to coordinate or deliver care. This year, Marsh surveyed more than 170 communications, media, technology, and emerging industry risk professionals and executives globally on these and other matters. We take a look at some of the key findings from the survey:

Opportunities and risks amid pandemic

The COVID-19 pandemic has created a massive health crisis, devastated many parts of the economy, and created global turmoil and uncertainty. Technology companies, however, have been resilient. And as demand for a variety of technological solutions have increased amid the pandemic, many companies have benefited from new opportunities and the expansion of existing ones. Despite the global disruptions it has caused, technology industry companies do not view the pandemic as their greatest business risk.

Top 5 risks for technology companies in 2021

  • Data security and privacy: Company or customer data is compromised, stolen, or misused.
  • Digital business interruption: Business operations are disrupted by a failure of systems or technology without a physical cause. This could be due to a cyber attack, software or design error, or other technology issue not due to a weather, accidental, or other physical cause.
  • IT resilience: The ability of systems to remain up, functional, and performing at highest speeds and capabilities.
  • Contingent business interruption: Business operations are disrupted by a failure of a supplier or vendor.
  • Directors and officers liability: The risk to directors and officers that decisions they make in managing a company are alleged to be wrongful.

Despite challenges, the tech sector remains resilient

Although growth for companies in some other industries will largely depend on the speed and degree to which we return to ‘normalcy,’ that is not true for the tech sector. Overwhelmingly, the pandemic has not had a meaningful effect on the factors that will drive growth in the industry in 2021 and beyond.

Top 5 assets for capabilities driving expected growth

  1. Skilled and engaged workforce
  2. Engaged and committed customer base
  3. Data, analytics and insights
  4. Core enterprise / digital platforms
  5. Data centres or communication infrastructure

How are tech companies planning to grow in 2021?

  • Developing new products and services within existing structure
  • Selling existing products or services to be used in new ways
  • Creating new divisions (for example, labs and innovation centres)
  • Launching new partnerships
  • Mergers or acquisitions

A crisis of confidence

Despite consumers trust in businesses as a whole increasing over the last decade, perceptions of individual industries vary. And while the technology sector is ahead of several other industries, the long term trend is troubling: Trust in technology companies has fallen nine points in Edelman’s index since 2012.

Maintaining the public’s trust is central to technology companies’ success, arguably now more than ever. Recent high profile data breaches and news reporting of their work with governments on surveillance tools have eroded tech companies’ reputations. Social media companies in particular have been in the spotlight, receiving criticism for their alleged censorship of political viewpoints, their failure to stem misinformation, and foreign meddling in social networks.

Technology companies surveyed by Marsh acknowledge the importance of public trust to their businesses. Only 3% of respondents say ‘trust’ is not discussed within their business, while more than a third say it’s either a critical component of environmental, social, and governance (ESG) initiatives or a lens through which they view many core activities and decisions.
Encouragingly, tech companies also acknowledge the importance of maintaining the trust of several groups, including customers, employees, and business partners. And almost two in three believe that establishing greater trust can help moderate their cost of risk or keep it below that of their peers.

Where do tech companies go from here?

With tech companies facing new and evolving pressures, six areas of focus will be key for the remainder of 2021 in terms of insurance and risk:

Cost management: Sustained increases in insurance pricing requires a conscious and powerful approach to minimise premium expenses and other risk management related costs.

Alternative program design: Traditional insurance structures and pricing models are being increasingly challenged by tech sector companies. From integrated risk to parametrics, the time is right to begin understanding and considering alternative approaches.

Risk assessments and modelling: Uncertainties in the global tech supply chain along with growing cyber and internet of things risks calls for diligence in rethinking a range of historic, expected, emerging, and potential exposures.

Risk strategy planning and reporting: Changes in both risks and costs and the emergence of alternative program designs requires a high level of engagement with a widening range of executive and board level stakeholders.

Digital risk management: The time is now for tech companies to move beyond inefficient legacy day to day and administrative models for insurance and risk management.

Investing in building trust: With trust and ESG commitments now foundational to tech companies’ ongoing success, risk professionals must further commit to both taking action and developing risk related solutions for their businesses.

If you want to read the full 2021 global technology industry risk report, you can download it here.

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