Emerging risks – a closer look at the implications of the Aon Global Risk Management survey

The hyper-connectivity of today’s global world means that many existing and newly emerging risks are currently uninsurable. This creates a challenge for risk managers and captive owners, as well as a massive opportunity for the insurance market. To gain an insight into this subject, Rory Moloney of Aon delves into the findings of his company’s Global Risk Management Survey.

We wanted to understand more about organisations’ attitudes to the top threats they face in today’s hyper-connected world. Hence, we analysed data from our biennial Global Risk Management Survey (GRMS*) and then subsequently asked captive directors (executive and non-executive) for their opinions on the rankings of the top 50 risks identified. The exercise delivered some interesting findings.

Stephen Cross, Chairman, Aon Centre for Innovation and Analytics, said: “We felt that the results from the GRMS 2013 had thrown up some anomalies. We approached captive directors for their opinions on the rankings of various risks to give us a more holistic view. As a result, we believe there is a real debate to be had across the risk management industry on insurable versus uninsurable risk. Understanding risk has always been a fact of business life, but today, the magnitude, complexity and speed have increased exponentially. That is why business leaders are concerned with how they manage risk.”

Focusing on a number of risks Aon deemed too low in the report’s global ranking, captive directors were asked the questions below resulting in the key findings as follows:

Question: Given the recent cyber-attack on Associated Press relating to a false report on an attack on the White House, which had a temporary but immediate impact on the stock market – do you feel that at ranking #18 computer crimes / hacking / viruses /malicious codes are under-rated?  

Response results: 83% agreed.  The legal exposure, reputational harm and business interruption that can result from cyber-attack can wreak havoc on a company’s bottom line.  It is important that businesses understand that cyber risk is a real risk that can hit organisations across any industry.

Question: As a result of the Japanese tsunami, 41% of affected companies interviewed by the Business Continuity Institute stated that it took more than 6 months for their supply chain to fully recover.  Do you think risks are becoming more interdependent in this global economy?

Response results: 88% agreed and answers were consistent to the relative size of their companies.  Under $1bn v over $1bn in revenues are slightly more concerned – 83% v. 91%.

We also asked if the insurance industry needs to be more creative around product development to meet increasingly complex risk exposures.  Overall, 76% of respondents wanted the industry to become more creative, especially around increasingly complex risk exposures with respondents from EMEA (89%) and clients over $1bn in revenue (79%) feeling the strongest need for innovation.

Another area of concern to Aon was the attitude towards terrorism risk, which was ranked #46 in the survey; 52% of captive directors agreed that this threat was ranked too low (62% in the Americas).  With more incidences of political unrest and terrorist attacks, organisations must not become complacent, as terrorism attacks are not confined to politically or economically unstable regions, and the results are almost always devastating.

Stephen Cross wonders if this a case of 'out of sight, out of mind'.  “Complacency around risk management is an issue which needs to be heightened. We believe risk managers have underrated the risk of terrorism, and the views of expert captive directors concur with our view,” he says.

When you look at the survey results, and particularly the high statistic around cyber-crime, it is possible to believe the low rating of cyber-threat might be due to a lack of ownership as often it’s not clear where this risk rests in an organisation.  Also, we still lack data which makes it difficult for the insurance market to respond," he said.

Successful businesses are increasingly using technology to increase sales, maximise efficiency and reduce expenses, but evolving technologies such as cloud computing and social media increase a business risk to cyber theft, fraud and sabotage.

In conducting this and other research, it has become clear that emerging risks are growing in complexity, becoming increasingly interdependent, and require more innovative and creative solutions.  The majority of the top 10 risks are uninsurable or only partially insurable, and the view is not too different for the remaining risks.

Natural catastrophes are a good example of this; the economic loss, especially in developed countries, is typically a multiple of insured losses.  According to Aon Benfield, global economic losses for the first 6 months of 2013 caused by Natural Catastrophes were $85 billion while reported insured losses were only around $20 billion.  Clearly there is a gap - and this is only one example.

The question is how, and if, as an industry, can we fill these gaps?

All of us, risk managers, risk advisors and insurance carriers must continue to evolve and innovate to stay relevant in this rapidly changing business environment. 

Risk managers need to become more multi-dimensional with their understanding of risk, risk advisors must do a better job of educating and consulting with our clients on all aspects on risk, particularly uninsurable risk and insurance carriers need to be more flexible and creative in providing solutions around these complex exposures.

Rory Moloney is CEO of Aon Global Risk Consulting

Rory Molony - Aon Risk Consulting