The release this month of the World Economic Forum's Global Risks Report 2019 is a reminder to anyone charged with managing risk to always maintain a holistic view of their organization.
The findings confirm that the increased interconnectivity, complexity and potential impact of risks are here to stay, and that caring for a business means considering everything that could affect it.
In my role as Head of Risk for Zurich North America, I must ensure that we adhere to Zurich risk policy. In doing so, I advise and challenge our leaders about balancing business strategy and risk-taking within an agreed risk appetite.
As a strategic partner of the WEF report, Zurich provides input into the report's strategy, scope and methodology as well as guidance into the report's overall structure and key content areas to focus on. We also co-fund the production with the WEF and Marsh & McLennan Companies.
The report covers a lot of ground and features the findings of the annual Global Risks Perception Survey, in which hundreds of WEF stakeholders are asked to consider a list of 30 global risks and rank them in terms of likelihood and impact over the next 10 years. This year, extreme weather, climate change and cyber/data risks dominated the top 10 in both categories—although “weapons of mass destruction” secured the top spot in terms of impact.
But the Global Risks Report is much more than the results of a survey. It also looks at the changing geopolitical landscape
, the impact of workplace and societal changes, the spread of infectious diseases, and a host of other topics. I’d like to highlight some of the risks likely to have the greatest impact on Zurich and its customers.
“Extreme weather events” were identified as the top risk in terms of likelihood over the next 10 years and the number three risk in terms of impact over the same time period.
In fact, environment-related risks dominated the results of the Global Risks Perception Survey, accounting for three of the top five risks by likelihood and four by impact. Following “extreme weather events” in the list of top global risks by likelihood are “failure of climate-change mitigation and adaption” at number two and “major natural disasters” at number three. The list of top global risks by impact includes “failure of climate-change mitigation and adaption” (no. 2), “extreme weather events” (no. 3), “water crises” (no. 4) and “major natural disasters” (no. 5).
These results should come as no surprise. During the last two years in the United States, we’ve experienced some of the deadliest and costliest extreme weather events on record. After years of relative calm, 2017 ushered in three of the most damaging hurricanes in history: Harvey, Irma and Maria. In 2018, two more massive hurricanes made landfall in the Southeast: Florence and Michael.
People may forever argue about the causes of climate change, but the debate over its very existence is largely settled: The planet is warming and we are already seeing the effects.
The Paris Agreement of December 2015 aims to strengthen the worldwide response to the threat of climate change by keeping a global temperature rise this century well below 2 degrees Celsius above pre-industrial levels. With that goal now clearly in doubt, “failure of climate-change mitigation and adaption” has claimed the number two spot both in terms of likelihood and impact in the Global Risks Report survey. Global warming has led to steadily rising sea levels, and the report devotes a chapter to the impact of this risk on coastal cities.
In 2018, Zurich produced a report, “Managing the impacts of climate change: risk management responses,” that provides risk management tools and outlines approaches and best practices to help businesses respond to the growing threat of climate change.
Another risk that has rightly garnered the attention of the global community is cyber/data risk. “Large-scale cyberattacks” is among the top-10 risks in terms of likelihood and impact in the Global Risks Report survey, and “massive data fraud/theft” is the number four risk by likelihood.
According to the Global Risks Report, a large majority of survey respondents expect increased risks of cyberattacks leading to theft of money and data (82%) and disruption of operations (80%) in 2019.
The U.S. business community feels particularly vulnerable to these threats, as evidenced by the World Economic Forum’s report, “Regional Risks for Doing Business 2018.” The WEF asked more than 12,500 business executives around the world to select—from a list of 30 global risks—“the 5 global risks that you believe to be of most concern for doing business in your country within the next 10 years.” Cyberattacks were ranked as the top risk in the United States; the number three risk was data fraud or theft.
If business leaders don't look at risk holistically, they won't be prepared to respond to the connected risks of extreme weather, climate change, infrastructure failure, cyberattacks and many others that can directly threaten their very survival.
The takeaway? For businesses to reach their full potential, they will need to see the bigger picture.