Cyber Risks a Top-Level Concern for European Risk Managers
January 29, 2019
Findings from the World Economic Forum's (WEF) Global Risks Report 2019 were published this month. According to the WEF, the world's ability to act collectively in the face of major crises has, itself, reached "crisis levels" in the context of what the WEF said are worsening international relations and a darkening economic outlook, caused in part by geopolitical tensions.
Done in conjunction with Marsh & McLennan Companies, Zurich Insurance Group, the University of Oxford, the National University of Singapore, and the University of Pennsylvania, the report's survey responses from nearly 1,000 experts and decision makers predicted that growth in 2019 will be held back by continuing geo-economic tensions, and respondents (88 percent) expected further erosion of multilateral trading rules and agreements.
If economic headwinds pose a threat to international cooperation, respondents predicted that efforts will be further disrupted in 2019 by rising geopolitical tensions among major powers, according to the report. Eighty-five percent of respondents believed that 2019 will involve increased risks of "political confrontations between major powers."
The report identified risks associated with what the WEF describes as a "multiconceptual" world order—one in which geopolitical instabilities reflect not only changing power balances but also the increasing salience of differences on fundamental values.
"With global trade and economic growth at risk in 2019, there is a more urgent need than ever to renew the architecture of international cooperation. We simply do not have the gunpowder to deal with the kind of slowdown that current dynamics might lead us towards. What we need now is coordinated, concerted action to sustain growth and to tackle the grave threats facing our world today," said Børge Brende, president of the World Economic Forum.
Environmental Risks Dominate
While rising cyber dependency trended second in terms of near-term risks, environmental risks dominated respondents’ long-term concerns according to the WEF. The report tracked five environmental trends: biodiversity loss, extreme weather events, failure of climate-change mitigation and adaptation, man-made disasters, and natural disasters. As in years past, all five remained in the high-impact and high-likelihood categories.
Alison Martin, group chief risk officer, Zurich Insurance Group, said, "2018 was sadly a year of historic wildfires, continued heavy flooding, and increasing greenhouse gas emissions. It is no surprise that in 2019, environmental risks once again dominate the list of major concerns. So, too, does the growing likelihood of environmental policy failure or a lack of timely policy implementation. To effectively respond to climate change requires a significant increase in infrastructure to adapt to this new environment and transition to a low-carbon economy. By 2040, the investment gap in global infrastructure is forecast to reach $18 trillion against a projected requirement of $97 trillion. Against this backdrop, we strongly recommend that businesses develop a climate resilience adaptation strategy and act on it now."
Cyber Risks and Risk Managers
In another recent report titled FERMA European Risk Manager Survey 2018, the Federation Of European Risk Management Associations' (FERMA) said cyber risks, either in the form of theft of data or money or of disruption to operations or infrastructure, were named by more than 80 percent of respondents as risks that they expect will increase in 2019. This put the two types of cyber threat in fourth and fifth place respectively among the top five risks according to FERMA.
For European risk managers, cyber risks have risen to the top level of threat to business progress over the last 2 years. The FERMA survey found that risk managers are increasingly involved in dealing with technological developments, and they work more closely with IT departments. Economic and geopolitical pressures, over-regulation, and changing consumer behavior made up their top five risks according to the FERMA survey.
A similar finding came from the Allianz Risk Barometer, according to FERMA, which also focused on business risks. The greatest concerns of Allianz' international respondents were business interruption, including supply chain disruption, and cyber incidents, including crimes, data breaches, fines, and penalties. Natural catastrophes; regulation and legislation, including trade disputes; and market developments were the other concerns in the top five.
IAIS Proposes Framework for Systemic Risk
Meanwhile, the International Association of Insurance Supervisors (IAIS) recently published its proposed Holistic Framework for Systemic Risk in the Insurance Sector. In the document, the IAIS proposed to evolve its current approach to systemic risk by doing the following.
- Recognizing that systemic risk may arise from both the collective activities and exposures of insurers at a sector-wide level as well as from the distress or disorderly failure of individual insurers
- Addressing cross-sectoral aspects of systemic risk by comparing the potential systemic risk stemming from the insurance sector with other parts of the financial system
- Moving away from a binary approach in which certain additional policy measures are only applied to a relatively small group of insurers (the identified global systematic important insurers) to an approach with a proportionate application of an enhanced set of policy measures targeted at the exposures and activities that can lead to systemic risks from the insurance sector as a whole
The holistic framework is slated for adoption in late 2019, with implementation beginning in 2020.
The full Global Risks Report 2019 is available on the World Economic Forum website.
The full FERMA European Risk Manager Survey 2018 is available on the FERMA website.
The full Holistic Framework for Systemic Risk in the Insurance Sector document is available on the IAIS website.
Above images are courtesy of the World Economic Forum.
January 29, 2019