Webcast: Global Risks and Your Risk Management Strategy
Risk professionals should be bold in reframing their function as global risks evolve, according to panelists on Marsh’s The New Reality of Risk® webcast.
The program featured highlights from the recently released Global Risks Report 2018, prepared by the World Economic Forum with support from Marsh & McLennan Companies and other partners. The report found that:
- Business leaders expect greater political and economic confrontation between major powers in 2018. Coupled with growing nationalism and populism and growing unilateral approaches by many countries toward several issues, including trade and climate, this is creating an environment for potential shock events.
- Cyber risk is the top risk for business leaders in advanced economies — and the risk that business leaders consider most likely to intensify in 2018. Cyber-attacks are projected to cost $8 trillion over the next five years, according to Juniper Research. And the risk is expanding beyond privacy exposures to include technology-driven business interruption.
- Environmental risk was identified as the top long-term risk for businesses. Recent extreme weather events, growing concerns about pollution and biodiversity, and scrutiny from investors and customers have elevated this risk in the minds of corporate leaders.
- Although feelings about the state of the economy are generally positive, vulnerabilities exist. The global debt to GDP ratio is at 318%, near an all-time high, and corporate debt to equity ratios have doubled since 2010. Meanwhile, the average time a company spends on the S&P 500 index has dwindled from 61 years in 1958 to 12 years today.
These trends demonstrate that both opportunities and risks exist for global businesses, said John Drzik, President, Global Risk & Digital, at Marsh. And many of the opportunities and risks stemming from geopolitical, societal, technological, economic, and environmental trends are closely related.
To succeed, risk professionals must reframe their role, Drzik said. Specifically, the risk management function should be aligned with strategic priorities and risk professionals should devote more resources to emerging risks, focus on risk prevention in addition to risk response, and engage key stakeholders from across their organizations.
Risk professionals should also focus on “unpacking” key risks — in other words, seeking to understand with greater precision what specific risks are and how they could affect their organizations, said Tom Quigley, leader of Marsh’s Communications, Media, and Technology Practice. Scenario modeling can help organizations anticipate the losses that are most likely to occur and plan for them. But as key areas of risk evolve and blend together, organizations must consider scenarios beyond those they’ve traditionally faced, Quigley said. To do this, organizations should look beyond their peers to study losses occurring in other industries.
And although their specific role will vary by company, risk professionals can serve as a catalyst for risk awareness and constructive debate, said Stacey Regan, who leads insurance risk management at GE. Among other actions, risk professionals should have candid, objective conversations with functional stakeholders — including security, product engineering, legal, and contract management — on a regular basis, especially around innovation.