What does the WEF Global Risks Report have to do with my Risk Management program? GRM016 Speakers: Linda Conrad, Head of Strategic Business Risk, Zurich Insurance Tim Bunt, Chief Risk Officer, CBRE Stefanie Welling, Senior Risk Analyst, CBRE
Learning Objectives learn more about the key global issues in the annual World Economic Forum s Global Risk Report review the many implications of the report on your business operations and risk management program. see how to leverage a free tool to analyze global risks factors on individual countries where you operate.
Agenda Global Risks Report 2016 Risk Interconnectivity How it Applies to My Company Tools You Can Use to Build Resiliency 3
The World is Beset by Multiple Near Term Instabilities and Long Term Structural Challenges Global instabilities Structural challenges Source: World Economic Forum, Global Risks Report 2016
Impact if the risk were to occur (score) A Weak Response to Climate Change and Involuntary Migration are most damaging and likely Risks 5.5 5.0 4.5 WM Ds Infectious diseases Biodiversity loss Energy price shock Food crises Terrorist attacks Fiscal crises Involuntary Asset migration bubblescyber attacks Interstate conflicts Social Extreme instability weather High unemployment Natural catastrophes Nat. governance failures Data fraud or theft Illicit trade Water crises Weak climate change response 4.0 3.5 4.0 4.5 5.0 5.5 6.0 Likelihood to occur over the next ten years (score) Economic Environmental Geopolitical Societal Technological Note: Entire scale is from 1-7. Top 20 risks in terms of overall impact and likelihood are shown Source: World Economic Forum, Global Risks Report 2016 5
Impact Heightened Concern about Societal & Environmental Risks 5.5 5.0 4.5 Infectious disease Critical ICT systems failure Energy price shock Biodiversity Social instability Deflation loss Interstate conflict State collapse 4.0 4.0 4.5 5.0 5.5 6.0 Likelihood Weak climate change response Involuntary migration 2015 Economic Environmental Geopolitical Societal Technological 2016 Note: Entire scale is from 1-7. Top 10 movers are defined as largest 10 absolute changes in impact likelihood space, 2015 2016 Source: World Economic Forum, Global Risks Report 2016
Geopolitical and Societal Risks Top Short Term, Environmental and Societal Risks are Long Term Rank Next 18 Months Rank 10-year Horizon Category Economic 1 Involuntary migration 1 Water crises 2 State collapse or crisis 2 Failure of climate change mitigation & adaption Environmental 3 Interstate conflict 3 Extreme weather events Geopolitical 4 High structural un- or underemployment 4 Food crises Societal 5 Failure of national governance 5 Profound social instability Technological Source: World Economic Forum, Global Risks Report 2016 7
Agenda Global Risks Report 2016 Risk Interconnectivity How it Applies to My Company Tools You Can Use to Build Resiliency 8
Social Instability is a Center- Piece for Risk Interconnectivity Extreme weather Weak climate change response Economic Biodiversity loss Food crises State collapse Interstate conflict Terrorist attacks Water crises Involuntary migration Social instability Nat. governance failures Cyber attacks High unemploy ment Fiscal crises Illicit trade Adverse technological consequences Environmental Geopolitical Societal Technological Source: World Economic Forum, Global Risks Report 2016 9
The Impact of Demographic and Climate Trends Could Have Cascading Effects on Social Stability Changing rainfall patterns Increased extreme weather Natural catastrophes Infrastructure disruption Business interruption Water and agriculture crises Slowed yield gains Local and systemic food crises Rising population Rising per capita resource consumption Social instability Rising tensions on land and water use Migration and social instability Source: World Economic Forum, Global Risks Report 2016 1 0
Agenda Global Risks Report 2016 Risk Interconnectivity How it Applies to My Company Tools You Can Use to Build Resiliency 11
The Issues Illustrate Why Companies Need a Holistic Risk Management Approach Ensure risk management is a Board level priority Set agenda, drive culture of risk and oversee implementation Integrate in corporate planning and strategy Estimated losses from cyber crime per year: US China US Japan $100bnGermany $200bn Global $445bn Establish 360 degree risk identification and assessment Scenario based analysis Company wide monitoring and reporting Build resilience and sustainability Political risks and supply chain mitigation Cyber risk awareness Source: World Economic Forum, Global Risks Report 2016
Preparedness for Geopolitical and Political Risks Will be Essential to Remain Competitive Threats to business General drag on economic activity Political surprises and policy shocks Product boycotts and volatility in customer expectations Disruption through protests general or company-specific Labor disputes and workforce retention challenges Areas for consideration Country risk assessments Supply chain resilience Political risk mitigation Reputation and brand positioning Cyber security efforts Human resources strategy
Zurich s Enterprise Risk and Opportunity Mgmt. Wheel Source: Zurich
Zurich Emerging Risk Radar Source: Zurich
Embedding Risk Culture Zurich-sponsored Harvard Business Review Survey: Risk Management in a Time of Global Uncertainty You know when you re really getting good at risk management, when the company does its risk assessment at the project kickoff rather than at the end. Angela Herrin, Harvard Business Review Analytics Services
How Total Risk Profiling Works See a video about Total Risk Profiling on YouTube Source: Zurich
Key Performance Indicators and Key Risk Indicators Key Performance Indicators (KPI) Progress on organizational targets and strategic goals Monitoring of employee activity completion and budget spend Measurement of results - lagging Forecasting for planning purposes Key Risk Indicators (KRI) Track metrics that are leading indicators to risk of performance Measurement based on data of influencing factors Ongoing monitoring of the level and cost of risk against risk tolerance Track changes in the risk profile of business landscape 18
Aligning Key Performance and Key Risk Indicators Key Performance Indicators (KPIs) help a firm see how it is performing in relation to its strategic goals and objectives. Key Risk Indicators (KRIs) are leading indicators of risk to business performance, giving early warning on potential risk event Zurich uses KRIs to monitor risks and run stress tests in the areas such as: natural catastrophe risks (as % of group shareholder equity) asset-liability matching (duration mismatch) strategic asset allocation (% allowed in investment category) credit risk (weighted average credit rating) other risks specific to business or functional areas 19
Key Risk Indicator Example ERM Vulnerability: Inability to attract and retain necessary talent, especially in key areas Possible KRI metrics to track risk significance and / or mitigation: Personnel turnover, especially in key operational areas Number of declined job offerings Time to fill job openings, especially key spots Client disputes and / or losses Qualitative measures, such as feedback obtained from HR personnel 20
CBRE s Org Chart Tim Bunt Chief Risk Officer Business Continuity Management Enterprise Risk Management Global Security Health, Safety & Environment Insurance Claims Management Insurance Risk Management
CBRE s ERM Program Framework 1
CBRE S GRC PROGRAM STRUCTURE
Environmental Economic Talent Management IT Strategy & Execution Change Management Supply Chain Disruption Market Share & Profitability M&A integration Fund Management Capital Markets Compliance Critical Facilities Comparison of ABC Company s Top Enterprise Risks to the WEF 2016 Global Risks Report 2016 Top Enterprise Risks 2016 Global Risks (WEF) Asset bubble in major economy Deflation in a major economy Failure of a major financial mechanism or institution Failure / shortfall of critical infrastructure Fiscal crises in key economies High structural unemployment or underemployment Illicit trade Severe energy price shock Unmanageable inflation Extreme weather events Failure of a climate-change mitigation and adaption Major biodiversity loss and ecosystem collapse Major natural catastrophes Man-made environmental catastrophes = Strong Correlation
Technological Societal Geopolitical Talent Management IT Strategy & Execution Change Management Supply Chan Disruption Market Share & Profitability M&A integration Fund Management Capital Markets Compliance Critical Facilities Comparison of ABC Company s top Enterprise Risks to the WEF 2016 Global Risks Report 2016 Top Enterprise Risks 2016 Global Risks (WEF) Failure of national governance Interstate conflict with regional consequence Large-scale terrorist attacks State collapse or crises Weapons of mass destruction Failure of urban planning Food crises Large-scale involuntary migration Profound social instability Rapid and massive spread of infectious diseases Water crises Adverse consequences of technological advances Breakdown of critical information infrastructure and networks Large-scale cyberattacks Massive incident of data fraud/theft = Strong Correlation
Zurich Risk Room on the Go Visit www.zurich.com/riskroom. Download a free demo for Apple or Android A simplified, demo version of the full app Contains 7 predefined scenarios on: Macroeconomic Imbalances Political Volatility Nat. Cat. and Disaster Management Supply Chain Disruption Demographic Shifts Sustainable Growth Human Capital Easy to navigate, intuitive interface Provides the ability to model changes in individual risks to see how they impact other, interconnected risks Available free of charge to the general public as part of Zurich s thought leadership innovations and initiatives 26
Zurich Risk Room at CBRE Scenario Planning Benchmarking / M&A Due Diligence Evaluate the Need for Political Risk Insurance Geopolitical Risk Dashboard 27
Zurich Risk Room at CBRE Scenario Planning Global & Regional
Zurich Risk Room at CBRE Benchmarking and M&A Due Diligence Against Region Against Company s Existing Portfolio
Zurich Risk Room at CBRE Evaluate the need for political risk insurance
Zurich Risk Room at CBRE Evaluate the need for political risk insurance
Zurich Risk Room at CBRE Geopolitical Risk Overview
Zurich Risk Room at CBRE Sample Geopolitical Risk Dashboard - APAC Risk Category Level & Trend Impact Areas of Concern Banking & Finance High Interest rate spread, CDS spread & venture capital availability Business Environment Medium Efficacy of challenging regulations & enforcing contracts Governance & Public Finance Medium External indebtedness & sovereign debt risk Human Capital Moderate Communicable & non-communicable diseases Infrastructure Moderate Information infrastructure & road safety Macroeconomic Environment High China slowdown, rising oil prices, exchange rate fluctuation Natural Environment Moderate Seismic disaster & storms and floods Sociopolitical High Outbound refugees, demographic shift, voice & accountability Technology & Innovation Low Licensee receipts & high technology exports Average Country with largest overall increase: Singapore
Zurich Risk Room at CBRE Country Revenue vs Risk Rating Revenue at Risk
Agenda Global Risks Report 2016 Risk Interconnectivity How it Applies to My Company Tools You Can Use to Build Resiliency 35
Zurich Enterprise Risk Management Diagnostic: Benchmark Process Versus ISO 31000 and COSO Source: Zurich 36
Supply / Value Chain Mapping Customer High protection High protection High protection Suppliers Sourcing Production Distribution Clients Analyzing risks along the value chain allows top-down prioritization of the implied protection. Source: Zurich 37
The Insurance Industry s Leverage Points to Strengthen Resilience Investments Impact investing Green bonds Divestment Insurance products Supply chain insurance Crop protection Disaster protect Risk management expertise Disaster mitigation Community resilience Informing policy creation Environmental, social and corporate governance
Questions? For more information go to: http://knowledge.zurich.com/risk-interconnectivity/ Linda Conrad Head of Strategic Business Risk Zurich Insurance Company linda.conrad@zurich.com The information in this publication was compiled from sources believed to be reliable for informational purposes only. Any and all information contained herein is not intended to constitute advice (particularly not legal advice). Accordingly, persons requiring advice should consult independent advisors when developing programs and policies. We do not guarantee the accuracy of this information or any results and further assume no liability in connection with this publication and sample policies and procedures, including any information, methods or safety suggestions contained herein. This is intended as a general description of certain types of risk engineering services available to qualified customers through The Zurich Services Corporation. The Zurich Services Corporation does not guarantee any particular outcome and there may be conditions on your premises or within your organization, which may not be apparent to us. You are in the best position to understand your business and your organization and to take steps to minimize risk, and we wish to assist you by providing the information and tools to help you assess your changing risk environment. The subject matter of this publication is not tied to any specific insurance product nor will adopting these policies and procedures ensure coverage under any insurance policy. 2016 The Zurich Services Corporation 3 9