According to the index, India Inc’s score is 57, which implies that firms are handling risks effectively. However, at a more granular level, the index indicates that new-age companies, and those in hospitality and logistics sectors could do a lot more in terms of handling risks.
Companies are mostly engaging with operational and natural hazard risks because of the pandemic. But, there needs to be an improvement in managing economic, technological, and security risks.
The risk index is arrived at after calculating the corporate house’s exposure and management of various risks. Across sectors, this index looks at market and macro factors, operational and physical risks, risks related to technology, security, and those associated with natural hazards.
A score in the range of 50-60 indicates optimal risk exposure and management. A score in the range of 30-50 implies that the corporate house is not handling risk effectively and management practices are inefficient.
Similarly, a score below 30 means the company has very high exposure or very poor risk management practices or both. On the other hand, a score of 60-80 implies effective risk management and practices, while a score beyond that implies that the company has invested heavily in risk mitigation.
New-age companies, and those in hospitality and logistics sectors have scores in the range of 30-50. Hence, they have significant gaps in risk management practices.
Sectors such as automotive, manufacturing, realty and infra, chemicals, FMCG, pharma, energy, and metals and mining have scores in the range of 50-60, which means though they handle operational and physical risks well — except for chemical and pharma sector where risks are more intrinsic — they need to focus more on market, economy, and strategic risks.
Healthcare, BFSI (banking, financial services and insurance), IT and ITES, and media and telecom are the sectors where risks are handled effectively. Although the BFSI sector has very high exposure to risk, firms are relatively better at managing such risks.
“Over the past 10 years, we have been looking at risk in a much broader perspective than of insurance. What we have seen is, India Inc has made significant progress in understanding and appreciating the risks they are living with and taking action in addressing them,” said Bhargav Dasgupta, MD&CEO, ICICI Lombard General Insurance.
On whether the company will use this index to base its premiums for corporate policies it sells, Dasgupta said, while it is not immediately co-related to insurance premiums but the thought process is, in the long term this will definitely help the corporates in saving cost of protection.
“We want to encourage superior risk management. The insurance business is to protect policyholders against any kind risk. Hence, it will be a net win for both the insurer and the company that is getting insured if both work together in reducing the inherent risk. So, companies which are managing their risk in the superior bucket are the ones who will build a sustainable business from a risk perspective,” he added.