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Emerging risks - are you prepared?

Financial, Executive and Professional Risks (FINEX)|Reinsurance
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February 3, 2021

Against a backdrop of warnings and simulations regarding potential emerging risks, are businesses still failing to adequately prepare for the future?

Our Financial and Executive Risks practice held its first virtual conference, ‘Beyond the limits – A blueprint for the future’, in November 2020, involving 11 sessions across 3 days covering topics from Financial Crime in 2020 to Claims – what the future holds. One of these sessions was titled ‘Emerging risks - are you prepared?’ The premise for the discussion was “Against a backdrop of warnings and simulations regarding potential emerging risks, are businesses still failing to adequately prepare for the future?”

We were warned, but did businesses act?

The session opened with a reminder that before the COVID-19 crisis, several expert institutions were sounding warnings on the potential of a pandemic event, and the need for organisations and governments to enhance resilience. The main reference point was a global pandemic exercise - ‘Event 201’ - which was held in New York in October 2019 and orchestrated by the John Hopkins Center for Health Security, the World Economic Forum and the Bill and Melinda Gates Foundation. The event brought together 15 global participants, made up of business, government and public health leaders, with participants walking through a ‘hypothetical’ scenario where a novel coronavirus transmits from bats to pigs to humans before spreading exponentially across the globe. Despite seven proposed recommendations put forward following the simulation, including; “Global business should recognize the economic burden of pandemics and fight for stronger preparedness”1, it seems that this ‘Call to Action’ was largely unheeded given the outcomes seen over 2020.

Other early warnings included the threat of pandemic influenza / infectious diseases at the top of the 2017 UK National Risk Register2, and the 2019 Global Preparedness Monitoring Board (co-convened by the World Bank and WHO) highlighting the need to take decisive action on the threat of a pandemic. The outbreak of COVID-19 has emphasised the need to reconsider the full risk landscape and re-evaluate understanding of the other risks required to be put back under the microscope, and has also raised the question how can investment in risk management and contingency planning contribute towards overall resilience?

Building resilience – flexibility is key

We must consider where the pain points of the business are. Considering a few different threats in our landscape - cyber, climate, pandemics, all will require very different responses – and yet any or all of them result in forms of business interruption. For example, at the beginning of 2020 many businesses were focussed on the threat of a cyber-attack causing disruption, with business continuity plan responses shifting the office to a secondary location. And yet, with this pandemic, that secondary location was ruled out with social distancing requirements, and Finance Directors were compelled to accelerate digital investment to get businesses up and running in home offices around the world. This is where flexibility and building resilience capabilities are essential. It is as much a culture challenge as an operational one – businesses need to be ready for multiple scenarios and be flexible when the exact situation doesn’t unfold as scripted.

Carpe diem - we’ve got senior management’s attention

In consideration of whether corporate perception of risk has changed in recent months, it is evident that risk has been put on the frontpage, increasing visibility of the risk management function, with several firms seeing an increased frequency of board risk committees. There is growing acknowledgment that risk frameworks require a greater focus on employee safety and well-being and that preparedness must include the continual drive of the Operational Resilience agenda, involving a collaborative-approach across the entire organisation.

Stress-testing should ensure resilience is viewed through a broad lens, considering a wide pool of triggers, firms must appreciate we need systematic resilience to fight systematic risk. It is important to understand supply-chain vulnerability and to consider a diversity of perspectives from a varied spectrum of industries when building-out future risk registers.

Resilience needs to be built into the fabric of society, involving not just investing in resilience and preparedness but adopting a cultural shift from a ‘just in time’ philosophy to one of ‘just in case’.

2020 has shone the brightest of lights on the need to revisit basic assumptions about the way we categorise and consider risks, trends, and how people and organisations think and respond in order to improve the quality and accuracy of decision making. Emerging risks are an essential part of this – and a good risk manager will know that the process of considering them goes beyond the annual process cycle. Resilience needs to be built into the fabric of society, involving not just investing in resilience and preparedness but adopting a cultural shift from a ‘just in time’ philosophy to one of ‘just in case’.

Improve your Operational Risk management

Willis Towers Watson’s Operational Risk Solutions team helps firms of all sizes to enhance their operational risk framework and manages projects that include operational risk assessment, exposure gap analysis, statistical modelling, model validation and insurability analysis.

Footnotes

1 Event 201: https://www.centerforhealthsecurity.org/event201/ recommendations.html

2 2017 National Risk Register: https://assets.publishing.service.gov.uk/ government/uploads/system/uploads/attachment_data/file/61934/national_risk_register.pdf

Contacts

Operational Risk Consultant, Global FINEX

Emerging Risks Research Manager, Willis Research Network

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