Busy management teams are struggling to keep pace with a range of new and emerging risks that pose significant financial risks to their business, according to new research published by ACE Group.
Lack of management attention, compounded by lack of skilled resources, management tools and processes, is hampering companies’ ability to manage a range of new and emerging risks, according to a survey of 650 companies in Europe, the Middle East and Africa conducted for global insurer ACE’s EMEA Emerging Risks Barometer 2013. In the survey, company leaders identify supply chain/infrastructure, environmental, cyber and D&O1 as the “big four” risks most likely to cause financial damage to their businesses in the next two years.
Andrew Kendrick, President, ACE European Group, said “Our research suggests that emerging risks have not yet become embedded in board level discussions on wider risk management issues. 57% of our respondents cite lack of management attention as the biggest barrier, and this leads in turn to the second and third challenges – lack of human resources and lack of risk management tools and processes.”
Biggest barriers to emerging risk management
According to the survey, at least 40% of companies view supply chain and infrastructure dependency, environmental liability, cyber risk and D&O liabilities as the emerging risks likely to have the most significant financial impact on their company in the next two years.
Emerging risks that companies believe will have the most significant financial impact on their business in the next two years (% of respondents):
45% of businesses say that they expect supply chain and infrastructure risk to have a significant financial impact on their company over the next two years. Sophisticated global supply chains have driven down costs for many companies, but businesses are paying the price through a lack of visibility into where risk exposures lie. Compounding these issues, many companies are reliant on creaking civil infrastructures, the security of international energy and power supplies and other challenges which expose them to severe financial risks in the event of business interruption.
Environmental risk ranks second, with 42% categorising it as one of the emerging risks most likely to have a negative financial impact on their business. With tougher government regulation and more vocal stakeholder concerns, companies are being held accountable for their environmental impact as never before. The fact that environmental risk ranks second overall also suggests an increasing awareness that it is an issue for all sectors, not just traditional ‘polluting’ industries. Nearly three quarters (73%) of firms say their shareholders are taking environmental risk more seriously.
Respondents rank cyber risk joint third, with 40% viewing it as one of the emerging risks most likely to affect their business. In recent years, cyber risk has become virtually unavoidable as companies become increasingly dependent on technology to do business. Over a third of companies cite viruses (49%), hacking (38%) and data theft by third parties (37%) among their greatest concerns. However, the majority of companies also recognise that the greatest threat often comes from within. 63% of firms believe that employees and internal failures can often pose a bigger threat than cyber criminals.
Although not a new risk, directors and officers (D&O) liability risk is constantly evolving against the backdrop of financial crises, changing regulation and growing international footprints. It ranks joint third, with 40% of companies believing it could present a significant financial threat over the next two years. Notably, in the wake of increased scrutiny post-crisis, respondents highlighted reporting errors as their greatest worry, followed by concerns about exposures to bribery, fraud and corruption.
Andrew Kendrick, President, ACE European Group, said “We know that real world events do not respect neat categories, and that many of our emerging risks are interconnected today. By paying greater attention to this complex and interlinked 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 help them ensure that these emerging threats become an integral part of their approach to enterprise-wide risk.”