Category Risk Management

Are we keeping pace with the worlds changes

28 June 2018 Jonathan Faurie

As the financial services industry comes to terms with the increased risk that influences the market, risk management is becoming a key skill. The role of risk managers are becoming far more important.

While a lot of studies have been done on the growing nature of risks, are we really changing the lens through which we view our world and approach risks? 

This was a key question that was asked at the recently held Annual General Meeting of the Institute of Risk Management South Africa (IRMSA). 

Massive growth

Doctor Gary Kendall, Sustainability and Strategy Specialist at Nedbank, pointed out that by 2050, the world’s population will increase by 2,5 billion people. “Almost 100% of this growing population are expected to move towards major cities in developing countries. The rate of urbanisation will be the same as the population increase,” said Dr Kendall. 

What does this massive concentration of risk mean for insurers? How do insurers even start to think about the challenge of seeing every one of these people as potential clients? In an ideal world, insurers should treat every person as a potential client. However, this is a mantra which looks easier in theory than it is in practice. What portion of this growing population will be lower income earners and how do we effectively include them into the financial services industry? 

Urbanisation is a major driver of changing weather patterns and climate change. If there is a massive population movement towards urban city centres, what will the effects be on farming and supply chain risk? Scientists have pointed out that humans will be expected to produce more food within the next 40 years than what was produced over the past 8 000 years. 

Rising heat

It is no secret that weather patterns change. There are numerous reports that point out that once upon a time, the Karoo was a massive inland sea; now it is a semi desert. Things change. 

“South Africa is extremely exposed when it comes to climate change. Carbon emissions are a major driver of climate change and global warming. While South Africa does not release the carbon emissions that China and the US do, it must be remembered that we do our part when it comes to carbon emissions with a much smaller population,” said Dr Kendall. While South Africa is 12th in the world in terms of carbon emissions, in Sasol’s operations in Secunda, South Africa is also home to the largest single point carbon emission project in the world.

Further, Dr Kendall pointed out that we emit our carbon emissions while asking for a free pass. South Africa is the premier major economic hub in the southern part of Africa. It supplies electricity to not only its own population but to the neighbouring countries of Mozambique, Zimbabwe, Botswana and Namibia. 

South Africa is obsessed with fossil fuel electrical generation despite the fact that renewable energy has proven to be a cheaper alternative in the long run. This leaves South Africa vulnerable when it comes to global warming. Scientists have proven that South Africa warms at double the global rate. At the moment, the rate of global warming is 3,5°C a year; this means that in the future, South African temperatures will increase by an average of 7°C a year. 

Again, this has massive implications on insurance. 

The desert rose

All of the above factors draw the lines on a playing field for a massive consumption headache for authorities and insurers alike. 

“In the future, there will be massive demand for water in urban city centres and there will be significant supply constraint issues. There are a lot of day zero situations looming around the world, it just so happened that Cape Town was the proverbial cannery in the tunnel that gave the world a warning of what may be a look into their future,” said Dr Kendall. 

This means that authorities and insurers may have to change the way that they approach the resolution of a crisis. Dr Kendall pointed out that water demand and supply is not an environmental problem, it is a societal problem. 

Broking success

All is not lost. Dr Kendall pointed out that the human race has often proved that it can come up with innovative changes. 

“Human beings can do extraordinary things when they put their minds to it. We just need to have a future in mind when we do things now. Our actions have unintended consequences and the impact of these consequences are not always desirable. As a human race, we need to start making smarter decisions of what to do and what not to do,” said Dr Kendall. 

However, not every human can make an informed decision that will have a positive impact on their own; some of us need a guiding hand. 

As stated before, the role of the broker can only grow in prominence in the future. Expert advise will be needed to make the decisions that will generate the positive outcomes that Dr Kendall spoke about. 

Urbanisation is going to significantly concentrate risks in the future and brokers will not only have a vital role to play when it comes to offering expert advise to clients, but they will also be key role players in offering advice to insurers. 

This is another example of how brokers will be the superheroes of the future. 

Editor’s Thoughts:
None of the solutions to the risks discussed above are easy. Then again, no joy or peace can be earned without a certain measure of sacrifice or hard word. Let’s hope it is the latter. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts

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