The World Economic Forum recently released their Global Risks Report 2018, highlighting the top concerns facing the world's population. As the pace of change accelerates and risk interconnections deepen, it is more critical than ever for risk managers to accurately identify and plan for risks which will impact their business.
The report notes that 2017 was a year of "widespread uncertainty, instability and fragility... and the latest results of our annual Global Risks Perception Survey suggests respondents are pessimistic about the year ahead."
Extreme weather events and natural disasters feature as the two most likely risk factors facing the planet this year, followed swiftly by cyber attacks and data fraud and theft. Couple this with the fact that these environmental events are also ranked as some of the most impactful and a feeling of pessimism among the respondents seems reasonable.
Many in the financial industry, and particularly within insurance, may be asking themselves what can be done to mitigate these high-stake risks, especially when so many can seem unpredictable.
Zurich Insurance's Chief Global Risk Officer, Alison Martin, took to Twitter to answer questions about the report, and how the insurance industry is stepping up.
Climate change and its repercussions
Environmental risks have been growing in prominence over the last decade, and seem to be coming to a head now, after a year filled with weather catastrophes across the globe. These risks aren't just confined to weather events though, the report highlights pressing hazards from water crises; accelerating biodiversity loss; and air, soil and water pollution.
So it isn't surprising that most questions sent in to #RiskChat were about climate change and its potential impacts over the upcoming year.
One key takeaway from Martin was that while "we're more likely to miss than hit the Paris Agreement targets" it isn't too late to make a difference. Making the shift to low-carbon energy and developing long-term solutions were key points to start managing the risks, with a particular focus coming from Martin on making responsible investments and moving away from thermal coal.
Insurance companies certainly have a vested interest in seeing the global risk of climate change being managed more effectively. As more disasters hit, homes, vehicles, travel plans and lives are impacted and more claims may need to be paid out than ever before.
When risk turns digital
It seems like cyber risk is on everyone’s minds these days, and there’s a fair reason for it. Cyber-attacks were perceived as the 6th most impactful risk, and the 4th most likely after climate change factors. Following this, massive data fraud and theft are causing concern, and even "adverse consequences of technological advances" are giving respondents pause for thought.
According to the report, cyber breaches recorded by businesses have doubled in the last 5 years, and in 2016 alone 357 million new malware variants were released. What were once considered large scale cyber-attacks are now becoming common place, so what can businesses do to be better prepared?
It was advised that "preparation is clearly key", and for businesses to understand their risk exposure. Indeed, this is reiterated time and again by CROs across the board, as they plan and test against cyber-threats for their own business.
The forgotten risks?
With such existential risks to content with, it can be hard to find time to focus on the (perceived) smaller and less likely risks of day-to-day. Interestingly, the report found many economical risks falling into lesser concern territory for their respondents, with unmanageable inflation; illicit trade; deflation and failure of financial mechanism or institution all being considered low likelihood-low impact.
This shift in perception will surprise no-one working in risk who has been a part of discussion on the rising emergence of non-financial risks, and how big data and AI can provide better analysis to make sense of the previously unpredictable.
Other risks failing to raise a big profile in the reports include:
- Failure of urban planning
- Failure of regional or global governance
- Unemployment and;
- Adverse consequences of technological advances
Low profile or not, risk managers, and especially those working within the insurance industry, will need to juggle a lot of urgent and important risks this year. Prioritising these will be increasingly difficult, and ensuring customer satisfaction and remaining profitable will add to the challenge.
What three things will impact the insurance industry most in 2018?
With RiskMinds Insurance coming up in a few months, we have been surveying CROs at top insurance companies across the world to get their view on the big disruptors in their industry this year.
We asked Martin, who came back with some expected concerns like “responding to new technologies” and “macro economic developments”, as well as a new answer, “changing liability dynamic”.
When asked to give some advice to insurers looking to stay ahead of the game and overcome these challenges, Martin’s response was centered around keeping an open mind and staying aware of biases.
Indeed, in 2018 it will be ever more important for traditional insurers to embrace new developments in technology, not rest on their large market-share and already established legacy systems.