During the early stages of the COVID-19 outbreak, I shared the concept of risk management with entrepreneurs. The environment is the perfect picture of a volatile, uncertain, complex and ambiguous (VUCA) world. When economies had to give in to health, businesses paused. Some were not able to operate again, and others had to reinvent their businesses.
Based on a May 7, 2020 McKinsey study, companies will need a large-scale reskilling of their workforces to emerge stronger from the COVID-19 crisis. Some of the human development investments before the pandemic may never yield the projected profitability because of the sudden changes in market forces. With this, how much time will the entrepreneurs need to focus on rebuilding or creating businesses that can survive in 2020 and compete again moving forward? Did they ever imagine that there was a possibility that they would not be around when restructuring, reengineering and pivoting happened in their businesses?
Entrepreneurs now feel that health risks are very real. I remind them that there are nine other risks that they are exposed to:
- Too much wealth can pose risks to those who don’t recognize the magic of diversification.
- Lack of liquidity can increase the risks of losing opportunities.
- Loss of income may mean that mortgages may not be paid on time.
- Transitions in life happen when children are migrating for school and work. Entrepreneurs run the risk of having no successor.
- Having a long life means working hard to have good health.
- Having a short life means crafting a legacy plan for those who are left behind to continue the journey.
- Having a disability means being unable to work to one’s maximum capacity.
- Having a sick member in the family means there is a risk of relationships coming under stress.
- In case of accidents, the disturbance at work will become disruptive.
While risks are everywhere and present 24/7, the good news is that there is such a thing as risk management in a VUCA world. I show my prospects a framework on risk management. There are four methods: terminate, treat, tolerate and transfer.
I recommend “transfer,” otherwise known as “outsourcing,” because it is a more economical way of managing the cash flow and the business in general. There are companies specializing in risk management, and owners can outsource this risk for a fee. Then the insurance products and companies come into the picture.
After identifying the risks and recommending a solution, they usually answer that they already have insurance. I know this objection is coming. I have them reflect on their policies, and I ask these questions:
- How did you derive the coverage? Did you match them with your need?
- Did you ever make changes in your policy?
- How did you name your beneficiaries?
- Did you ever file a claim?
- Why did you buy the policies?
After probing, they find that the coverage is usually not enough, and their mindset is that I am ready to listen. When I help prospects acknowledge the presence of risks, they agree to talk about insurance with less resistance and with open-mindedness.
In a VUCA world, all advisors play a crucial role in being the additional lens of the businesspeople. Businesspeople are sharp in creating value through ideation, prototyping and testing. We turn a VUCA world to their advantage:
- We help them manage volatility with speed and clarity.
- We help them counter uncertainty with knowledge.
- We help them react to complexity with simple solutions.
- We help them fight ambiguity with adaptability.
When we help entrepreneurs identify the risks logically and mitigate them systematically, we provide them the rewards of risk management.
In the COVID-19 era, advisors carve their names as front-liners of economic development by enabling entrepreneurs to focus on rebuilding sustainable businesses with confidence, agility and peace of mind.
Arlyn Tiong Tan, MBA, FChFP, is a 14-year MDRT member with six Court of the Table qualifications and one Top of the Table honor. Affiliated with Sun Life Philippines for 17 years, Tan is a seasoned financial advisor in the areas of risk, retirement and wealth management. Her backgrounds in health and entrepreneurship enable her to provide additional value to organizations and family-run businesses by integrating succession planning in their financial plans. She mentors junior financial advisors under the Pinnacle Unit and also serves as a resource person on financial planning in organizations.
