EXCELLENCE IN RISK MANAGEMENT XIII Emerging Risks: Anticipating Threats and Opportunities Around the Corner

EXCELLENCE IN RISK MANAGEMENT XIII Emerging Risks: Anticipating Threats and Opportunities Around the Corner

World Economic Forum Global Risks 2016 1

Key Themes Definitions Assessing and Modeling Emerging Risks Forecasting Investments 2

Defining Emerging Risks The standards haven t been set yet for defining emerging risks. DIRECTOR OF RISK MANAGEMENT AT A PHARMACEUTICAL FIRM

Defining Emerging Risks RIMS Strategic Risk Management Implementation Guide: Risks that have not been experienced previously. Different from dynamic risks, which are those that are known but may change over time. Marsh & McLennan Companies Global Risk Center: Complex threats and uncertainties that may have significant, unexpected impacts. Can crystallize with sudden shifts in velocity. Hard to predict due to their interdependencies with other issues. 4

Where Will Critical Risks Likely Emerge From? From which of the following areas do you think the next critical risks for your organization will emerge? Cyber-attacks Regulations 58% 61% Talent availability Technological change Customer demands Competitors 40% 38% 36% 35% Natural disasters Terrorism/political violence Fiscal crises 25% 29% 28% Supply chain 21% 5

Where Will Critical Risks Likely Emerge From? Please state the time frame in which you think the next critical risks will impact your organization. Cyber-attacks Regulations Talent availability Technological change Customer demands Competitors Natural disasters Terrorism/political violence Fiscal crises Supply chain 79% 71% 53% 61% 69% 74% 70% 69% 43% 58% 19% 27% 37% 33% 27% 19% 21% 25% 43% 37% 2% 3% 10% 7% 4% 7% 9% 6% 14% 5% IS ALREADY A SIGNIFICANT CONCERN WILL BE A SIGNIFICANT CONCERN IN ONE TO THREE YEARS WILL BE A SIGNIFICANT CONCERN IN MORE THAN THREE YEARS 6

Time Frames And Emerging Risks 79% Of those who choose cyber-attacks as the next critical risk to impact their organizations said it is already a significant concern.

Time Frames And Emerging Risks The Here and Now Around the Corner On the Horizon Cyber-attacks. Regulations. Talent availability. Fiscal crises, sustainability demands, and social instability. Climate change, water crises, and large-scale involuntary migrations. Emerging technologies. Insufficient infrastructure. 8

Forecasting Emerging Risks 48% Of risk professionals and C-suites executives said forecasting risks will be more difficult or significantly more difficult three years from now.

Risk Forecasting More Difficult Do you expect it to be easier or more difficult to forecast critical risks to your business three years from now? 36% 32% 40% 26% 26% 21% 5% 2% 4% 8% Significantly easier Easier Same More difficult Significantly more difficult THREE YEARS AGO THREE YEARS FROM NOW 10

Barriers to Understanding 43% Of risk professionals said lack of cross-organization collaboration was a barrier. 44% Of C-suite executives cited cultural/ institutional issues, geared toward understanding of concepts.

Barriers to Understanding What barriers inhibit your organization s ability to understand the impact of emerging risks on business strategy and decisions? RISK MANAGEMENT C-SUITE 1. Lack of cross-organization collaboration Cultural/institutional 2. Cultural/institutional Lack of awareness of key risk management concepts 3. Budget Budget 4. Inability to model the magnitude of the risk Inability to model the magnitude of the risk 5. Lack of awareness of key risk management concepts Lack of cross-organization collaboration 12

Assessing and Modeling Risks What sources of information do you rely on to understand the potential impacts that an emerging risk may have on your organization? Reading news/trade/reading news/trade/industry publications 61% 72% Brokers 49% 60% Senior leaders (C-suite, board) 44% 59% The field (floor managers, sales leaders, operations, etc.) 53% 51% Analyzing internal/external data 37% 49% Seminars 32% 42% Peers 38% 44% Insurers 32% 29% Consultants (non-legal) 17% 24% Instinct 5% 15% Financial analysts 13% 29% Outside attorneys Social media channels 6% 13% 12% 29% RISK MANAGEMENT C-SUITE 13

Assessing and Modeling Emerging Risks 60% Of risk professionals choose claimsbased reviews as a technique to model/assess emerging risks.

Techniques for Assessing and Modeling Risks Which risk management techniques does your organization use to assess/model emerging risks? Claims-based reviews 43% 60% Analyses developed by third parties 30% 45% Analytics (stochastic modeling, game theory, etc.) Scenario planning or war games Dynamic risk maps 19% 38% 31% 35% 25% 27% Other 7% 11% RISK MANAGEMENT C-SUITE 15

Assessing and Modeling Risks: Analytics My organization would benefit by improving its use of data and analytics in the following areas: Quantifying specific risks, including emerging issues 74% Understanding risk tolerance 51% Risk reporting to the board and other stakeholders 34% Optimizing insurance programs 27% Evaluating supply chain vulnerabilities 23% Modifying risk finance decisions 20% Evaluating specific risk issues and decisions related to merger and acquisition (M&A) or spinoff 15% Creating a more robust audit trail 9% Other 1% 16

Risk Committees If your organization has a cross-functional risk committee, does the committee discuss emerging risk trends? 11% 1% OCCASIONALLY YES, AT NEARLY EVERY MEETING NO, THE FOCUS IS ON CURRENT RISKS 47% NO RESPONSE 41% 17

Investing in Emerging Risk Management Do you expect your level of investment over the next two years to increase, remain flat, or decrease? 1% 1% 3% 3% 2% 3% 4% 5% 23% 52% 52% 62% 64% 64% 71% 76% 77% 47% 44% 35% 34% 33% 25% 19% Cyber risk management Risk analytics Risk management training Purchasing additional insurance lines of coverage Additional insurance limits Risk management information systems Risk management staffing levels Risk management consulting services INCREASE REMAIN FLAT DECREASE 18

We ve all experienced this elevation of risk management at our institutions, but as we are battling for budget, it becomes pretty easy for risk management to get pushed over to the side. ASSISTANT VICE PRESIDENT OF RISK MANAGEMENT AT A MAJOR UNIVERSITY.

Considerations Foster broad collaboration. Challenge the agenda of your organization s risk committee. Use a broad array of information sources. Push ahead on the use of data and analytics. Seek external voices to challenge conventional thinking. Pay attention to social media; embrace it or at least don t tune it out. Use the Excellence in Risk Management report and others to stimulate discussions around the future of risk management. 20