Supply chains top risk manager concerns. The ‘big four’ risks that businesses believe will have the biggest financial impact in the next two years are supply chain, environment, cyber and D&O, according to a report by ACE.

The aftermath of the financial crisis continues to be felt in an ever more complex and dynamic risk environment.  ACE Group’s Emerging Risks Barometer* reveals that managing in the new economic normal is far from straightforward.  Jeff Carr discusses the findings.

The issues keeping risk managers awake at night are not always the high-profile risks such as exposure to terrorist threats or confiscation of assets in far-flung places – important as these are. In fact, our research shows that the ‘big four’ risks that businesses believe will have the biggest financial impact in the next two years are supply chain, environment, cyber and D&O.

Emerging risks that companies believe will have the most significant financial impact on their business in the next two years (% of respondents):

Some risks, such as cyber risk, are relatively new. Others, like environmental and D&O risks, have been around for a long time, but have taken on a new dimension due to social, economic and regulatory change. Indeed, the impact of increased regulation is a theme which crops up repeatedly in our research. So too does the impact of increasing globalisation, which is creating new exposures, as companies expand abroad via more complex, extended supply chains.

Compounding this complexity for risk managers is the fact that risks are often interconnected. Real world events do not respect neat categories. An environmental incident affecting an important supplier in Thailand can quickly become a supply chain risk with a severe financial impact for a company on the other side of the world. Understanding the interdependencies between different processes, operations and players in the global supply chain is one the most critical tasks an organisation can undertake, and one of the most challenging.

Not surprisingly, busy management teams are struggling to keep pace with the range of new and emerging risks. Our research suggests that emerging risks have not yet become embedded in board level discussions on wider risk management issues. 57% of our respondents (and 68% in the UK) cite lack of management attention as the biggest barrier to emerging risk management, and this leads inturn to the second and third challenges – lack of human resources and lack of risk management tools and processes.

Biggest barriers to emerging risk management (% of respondents)

The identification and monitoring of emerging risks is far from straightforward. It requires non-traditional approaches and a willingness to listen to dissenting voices that challenge received wisdom. However, the dynamic nature of today’s risk environment means that it should be a growing priority for companies with the right capabilities and processes to monitor their emerging risks, as part of a broader enterprise-wide approach to risk management.

CROs clearly have an important role to play in this - leading the corporate response to these challenges, monitoring new threats and pinpointing the right issues for management’s attention.

The role of the insurance industry is to support the risk management community as it comes to grips with these challenges. I believe that to do that we need to shift from a ‘product’ to a ‘service’ mentality, and that at the same time, we should encourage our clients to move from a transactional to a strategic approach to their insurance partnerships. 

Risk is often the corollary of opportunities that companies are rightly pursuing in their quest for growth. By understanding and responding to this array of emerging threats and challenges, risk managers can help their organisations to put their strategic plans on a sustainable footing. And by working with them in a collaborative way and taking a strategic approach to their client relationships, insurance brokers and underwriters can ensure they support economic growth and recovery.

Jeff Carr is Head of Client Management at ACE in the UK