The 14th Annual Survey of Emerging Risks: Key Findings tracks risk-manager thoughts on the topics beyond the normal planning cycle, trending them over time and seeking strategic implications while providing a snapshot of how teams are preparing for the worst while strategizing for the best outcomes. The full report will be published in spring 2021.
Completed in November 2020, its questions are both quantitative and qualitative, enabling consistency from year to year and allowing evolving risk management practices to be shared. The anonymous responses from 188 participants around the world, especially the comments, give risk managers a way to network anonymously with peers and share the new ways they are thinking about risk.
Respondents were asked to choose the top current risk, top five emerging risks, top emerging risks, and three sets of two-risk combinations from a list of 23 risks that have been allocated to five categories. The categories include economic, environmental, geopolitical, societal, and technological risks. The survey goes on to ask questions about practices related to leading risk indicators, enterprise risk management, and current topics.
The online survey saw a surge in responses to the pandemics/infectious diseases risk. It is now top ranked when respondents are asked about the top current risk with 45% selecting it. This is not surprising since recent pandemics, like Ebola in 2014, were regional epidemics and had little financial impact in the developed world, while lockdowns have caused great disruption globally in 2020.
“This year’s survey is interesting. You would expect pandemics/infectious diseases to surge, and nearly half the respondents (45%) listed it as their top current risk (up from 2% last year),” explains Max Rudolph, FSA, CFA, CERA, MAAA, Rudolph Financial Consulting, LLC, the author of the research report. “As an emerging risk, the risk increased but had already been a top 10 emerging risk in prior surveys. Disruptive technology and globalization shift were the only other risks to advance at least 5% from the prior survey. Even a risk like natural disaster: tropical storms, where a record number of hurricanes and cyclones occurred, was lost in the shuffle and was down slightly as an emerging risk.”
What else do the findings reveal?
The survey findings continue revealing global economic expectations are down, with more respondents having negative views of future conditions compared to the previous survey. Nearly 20% of respondents expect 2021 to be good or strong but 25% have poor expectations for the global economy. This could reflect the economic uncertainty resulting from the pandemic.
Geopolitical risks lead among categories and societal risks are also up. Emerging risks in the geopolitical category were stable compared to 2019 when choosing five emerging risks, but it remains the leading risk category while the societal category had the only material increase. Risks in the economic and environmental categories were both lower, and technological risks increased.
“Because we keep our risks consistent from year to year, the ability to trend the results is very interesting. Pandemics/infectious diseases spiked as the current risk on everyone’s mind, but it shows the survey’s credibility that it did not move to #1 among emerging risks or risk combinations,” points Rudolph. “A current risk has a very short time horizon, but an emerging risk should be 10 years or more.”
“A current risk has a very short time horizon, but an emerging risk should be 10 years or more.”Max Rudolph, FSA, CFA, CERA, MAAA
Risk managers, like many employees in 2020, were asked to accomplish more with less, a highlight that Rudolph says comes as no surprise. While 53% of the respondents, reported increased activity (and only 15% saw their staff size grow) in 2020, 38% expected that trend to continue into 2021. Despite the challenging risk environment, 9% experienced reduced staff in 2020 and 10% expect funding to fall in 2021. Risk managers are being asked to cut corners at the very time their skill set is most needed.
“Going beyond insurers, I think the results show that risks evolve, and we should continue tracking all of our risks qualitatively even if they aren’t in our top 5,” emphasizes Rudolph. “This year pandemics spiked, for obvious reasons. Previously climate change has been moving up, and cyber risk before that, and financial volatility before that. You can’t sit on your hands or rest on your laurels. Risk management is a process, not a project.”
The 14th Annual Survey of Emerging Risks: Key Findings was sponsored by the Canadian Institute of Actuaries, the Casualty Actuarial Society, and the Society of Actuaries.