Forecasting Emerging Risks Expected to Increase in Difficulty; Shifts in Cyber and Regulations Remain Top Concerns: Marsh/RIMS Report
New York | April 11, 2016
Most risk professionals believe that forecasting risk will not get any easier in the next three years, with cyber-attacks and regulation topping the list of areas from which emerging risks will likely arise, according to a new report published jointly today by Marsh, a leading insurance broker and risk advisor, and a wholly-owned subsidiary of Marsh & McLennan Companies, Inc. (NYSE: MMC) and RIMS, the risk management society™.
The 13th annual Excellence in Risk Management report finds that while risk professionals are increasingly relied upon to identify and assess emerging risks, there remain organizational and other barriers to providing that critical view “around the corner.” Nearly half of survey respondents – 48% – said that forecasting critical business risks will be more difficult three years from now; another 26% said it would be the same.
This year’s Excellence survey sought to better understand how organizations view emerging risks facing their organizations and the tools they use and barriers they face in assessing, modeling, and understanding them. According to the findings, a majority of respondents — 61% — cited cyber-attacks as the likely source of their organization’s next critical risk. This was followed by regulation, cited by 58% of the respondents, and talent availability, cited by 40% of the respondents.
“Whether emerging risks are on your doorstep, around the corner, or on the far horizon, they have the potential to catch organizations unaware,” said Brian Elowe, Marsh’s US client executive leader and co-author of the report. “It’s important for risk professionals to maintain awareness of global risk trends, and to make the connection to their organizations’ business strategy.”
Based on the survey responses and insights from numerous Excellence focus group discussions, it became clear that risk professionals generally agree on the importance of identifying emerging risks, and also that there is no clearly established framework for doing so. More can be done to better identify, assess, and manage the impact emerging risks may have on organizations.
For example, a majority — 60% — of the risk management respondents said they use claims-based reviews as one of the primary means to assess emerging risks, compared to 38% who said they use predictive analytics.
“The widespread use of claims-based reviews means that a majority of organizations are relying on studying past incidents to predict how emerging risks will behave rather than using predictive analytic techniques like stochastic modeling and game theory to help inform their decision making,” Mr. Elowe said.
Survey respondents also cited several barriers to understanding the impact of emerging risks on their business strategy and decisions with lack of cross-organization collaboration ranking first among risk professional respondents.
“Lack of collaboration across the organization is still an issue for many risk professionals. On the other hand, breaking down silos has become less of a concern for executives,” said Carol Fox, vice president, strategic initiatives for RIMS and co-author of the report. “Tackling emerging risks often requires creative yet pragmatic approaches. It has to encompass internal cross-functional conversations — formal and informal — around the intersection of risk and strategy, senior-leadership engagement, and tapping into external information sources. Risk professionals are encouraged to broaden the scope and collaboration around emerging risk issues within their organizations.”
The Excellence survey, Emerging Risks: Anticipating Threats and Opportunities Around the Corner, is based on more than 700 responses to an online survey and a series of focus groups with leading risk executives in January and February 2016.
RIMS, the risk management society™, is a global not-for-profit organization representing more than 3,500 industrial, service, nonprofit, charitable and government entities throughout the world. Dedicated to advancing risk management for organizational success, RIMS brings networking, professional development and education opportunities to its membership of more than 11,000 risk management professionals located in more than 60 countries. For more information, visit www.RIMS.org.
Marsh is the world’s leading insurance broker and risk adviser. With over 35,000 colleagues operating in more than 130 countries, Marsh serves commercial and individual clients with data driven risk solutions and advisory services. Marsh is a business of Marsh & McLennan Companies (NYSE: MMC), the leading global professional services firm in the areas of risk, strategy and people. With annual revenue approaching US$17 billion and 76,000 colleagues worldwide, MMC helps clients navigate an increasingly dynamic and complex environment through four market-leading businesses: Marsh, Guy Carpenter, Mercer, and Oliver Wyman. Follow Marsh on Twitter @MarshGlobal; LinkedIn; Facebook; and YouTube, or subscribe to BRINK.