The top emerging risks, meaning those with a horizon of 10 years or more, include: financial volatility (62 percent); regional instability (42 percent); cyber security/interconnectedness of infrastructure (40 percent); failed and failing states (33 percent); and Chinese economic hard landing (31 percent), according to the sixth “Emerging Risks Survey,” conducted in October 2012, by the Joint Risk Management Section, a collaboration between the Casualty Actuarial Society, Canadian Institute of Actuaries and Society of Actuaries.

The top emerging risks in the prior study, conducted in October of 2011, included: financial volatility (68 percent); failed and failing states (42 percent); cyber security/interconnectedness of infrastructure (38 percent); Chinese economic hard landing (32 percent); oil price shock (32 percent); and regional instability (32 percent).

Emerging risks are those evolving in uncertain ways, those forgotten in their dormancy, or those that are new, and do not have well-defined distributions. As a result, they require more thought when modeling their impact, the survey says. Risks that generate historical data and remain stable over time can be represented by a statistical distribution; the survey attempts to track the thoughts of risk managers about emerging risks across time.

More than two-thirds said they expect a good or moderate economy, which is consistent with other survey data that indicates a risk management community “less focused on survival and able to consider a longer time horizon and preparation for broader risk possibilities,” the study said.

According to the 2012 results, there have been shifts in concern, even as the economic category of risks continues to top geopolitical, societal, technological and environmental categories. The economic category’s level of importance is fading; geopolitical risks increased in total.

Regional instability reached a new high of 9 percent, as did loss of freshwater services (11 percent); interstate and civil wars (14 percent); and liability regimes (8 percent). New lows were found for oil price shock (31 percent), Chinese economic hard landing (31 percent); pandemic/infectious diseases (12 percent); natural catastrophes: inland flooding (1 percent); and natural catastrophes: earthquakes (2 percent). Despite the new lows, some risks remained in the top five.

As a practice, financial modeling continued to grow, though at a slower pace than indicated in the 2011 study; 41 percent of respondents said they grew internal staff in 2012, compared with 50 percent in 2011. Enterprise Risk Management (ERM) activity grew at a faster pace than in 2011 (65 percent); and for 2013, 66 percent said they anticipate activity to increase, but only 38 percent said they anticipate an increase in funding. Few, 5 percent, said they anticipate funding to decrease for ERM activities. “As time passes from the financial crisis, the focus is turning to financial modeling of all risks,” the study said.

“ERM is at a crossroads,” the report says. “Many are being asked to do more without additional funding. Some complete the bare minimum to deflect external stakeholders. Others are finding their efforts receiving more exposure but not in ways that add value. Happily, there are some best practice firms that have incorporated risk into their strategic planning process.”

Register or login for access to this item and much more

All Digital Insurance content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access