Are we serious about risk management?

Risk management has always been an important part of the insurance industry. But while this importance has always been present, it has been a bit latent.

importance has always been present, it has been a bit latent.

This needs to change. The dissatisfaction with politicians over the past year is a prime example of how a non-risky situation can quickly escalate into a risky one. The recent Western Cape Storms and Knysna fires are further examples of this. Let’s also not forget the risk posed by the Fourth Industrial Revolution.

Setting the scene

In an attempt to set the scene and openly discuss the risks we face on a daily basis, a number of the world’s largest reinsurers have released risk reports which delve into this in extensive detail.

While the risks presented in the reports are international in nature, they can be applied to the South African market. What is becoming more apparent on a daily basis is South Africa’s position in an interconnected world. Our risks do not exist in isolation nor are we immune from global risks.

Political turmoil

One of the risks highlighted by the recent World Economic Forum’s Global Risk Report is that of political uncertainty.

One of the major factors when it comes to political risk relates to the functioning of society and politics: the report looks at how civil society organizations and individual activists are increasingly experiencing government crackdowns on civic space, ranging from restrictions on foreign funding to surveillance of digital activities and even physical violence.

In South Africa, the situation is different. Here it is about the government’s abuse of power and its non-participation in certain social issues. The public wanted President Jacob Zuma to be held accountable for the corruption that is plaguing society; yet, these calls fall on deaf ears.

Similarly is governments standpoint on the issue of free tertiary education, the students want to engage with government on this issue, and Higher Education Minister Blade Nzimande has been silent on this issue. 

An issue underlying the rise of disaffection with the political and economic status quo is that social protection systems are at breaking point. When government ignores the voice of the people, tensions are raised and violence is never far from the surface. This could be seen in the unwarranted destruction that followed in the wake of the FeesMustFall protests in 2016 and on numerous occasions during service delivery protests this year.

The Fourth Industrial Revolution

Another pressing risk is the management of the impact of the Fourth Industrial Revolution. Technology, and in particular artificial intelligence (AI), is impacting many industries in very specific ways.

The report points out that the world faces pressing governance challenges if we are to construct the rules, norms, standards, incentives, institutions and other mechanisms that are needed to shape the development and deployment of these technologies.

How to govern fast-developing technologies is a complex question: regulating too heavily too quickly can hold back progress, but a lack of governance can exacerbate risks as well as creating unhelpful uncertainty for potential investors and innovators.

Again, let’s look at this in the South African context. South Africa’s unemployment rate is currently around 20%. Let’s say that by 2025, AI displaces a further 20% of South Africa’s workforce. What will the future of this country be when unemployment is at 40%? And AI replacing 20% of a workforce is a conservative estimate; some technology experts suggest that this figure could be closer to 50%.

Currently, the governance of emerging technologies is patchy: some are regulated heavily, others hardly at all because they do not fit under the remit of any existing regulatory body. South Africa needs to get serious about managing this risk.

Editor’s Thoughts:
We have only covered two risks that are currently very relevant in today’s society. Other risks include slow economic growth and climate change that brings about drought. What does the future hold? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts [email protected].