Risk management needs to become a top priority

If 2017 proved anything, it proved that we live in a world that is defined by risk. It also pointed out that risk management is becoming an increasingly important function within insurers and brokerages.

In an ideal world, we would be able to see risks before they occur. But we do not have that luxury and we have to rely on reports to try and predict the future. 

According to the 2018 Marsh Global Risk Report, the financial services industry will mostly be facing the same risks as it did last year. 

Environmental risks

Marsh South Africa CEO, Spiros Fatouros, points out that in a world of growing environmental strains, our increasingly complex food system is becoming more vulnerable to sudden supply shocks. 

“The interaction of disruptors such as extreme weather, political instability or crop diseases could result in a simultaneous blow to output in key food-producing regions, triggering global shortages and price spikes,” says Fatouros. 

He adds that the risk of a systemic breakdown could be further elevated by wider fragilities, including reduced crop diversity, competition for water from other sectors and geopolitical tensions. 

Should this occur, the risk report points out that social fractures would intensify in affected and at-risk countries. Political and economic crises would be likely. So too would a surge in smuggling, both of food and people. 

A convoluted web

The business world is increasingly navigating towards the internet as that is where the new breed of client can be found. 

However, criminals are also moving off the street towards the internet. The risk report points out that artificial intelligence (AI) weeds will become more abundant, choking off the performance of the internet. 

“What if the adverse impact of AI is that superintelligence does not take control from humans but AI weeds – low-level algorithms – slowly choke off the internet? As algorithms increase in sophistication, they also become vulnerable. This will affect us greatly as we become more reliant on code that writes code,” says Fatouros. 

Fatouros adds that a divergence could open between the code we have created and our capacity to track and control it. 

“A trend towards reduced internet efficiency would undermine service delivery in countless businesses. It could hobble the Internet of Things. It would frustrate users. If the problem became significant enough, it could prompt some governments to wall off parts of the internet. If malicious actors found ways to proliferate or weaponize the AI weeds, they could do extensive damage,” says Fatouros. 

The report adds that as global demands placed on the internet increase in scale and sophistication, digital hygiene is likely to become a more pressing concern for end users. The development of overarching norms, regulations and governance structures for AI will be crucial. 

Financial crisis fears

The risk report points out that a cascading series of economic/financial crises would overwhelm political and policy responses.

It adds that against a backdrop of domestic and international political strife—and with economic policy-makers already operating in uncharted territory—the eruption of another global financial crisis could overwhelm political and policy responses. 

A systemic collapse of that avoided in 2008 could push countries, regions or even the whole world over the edge and into a period of chaos. 

“If financial systems go down, contemporary economies and societies cannot function. Money would stop circulating. Wages would not be paid. Supply chains would break down. Scarcity would begin to become pervasive, and this would threaten to upend the political and social order,” says Fatouros. 

He added that in these instances, policy-makers would pull every available lever to restore stability. But what if the prospect of another financial-sector bailout further enflamed societies rather than calming them? Or what if the financial system’s collapse stemmed from a hostile cyberattack, raising fears that more attacks and disruption lie ahead? 

Editor's Thoughts:
Despite these challenges, there is a general optimism that 2018 will be a far more successful and productive year than 2017 was. The industry needs to work together to address its challenges and risk management needs to become a top priority for businesses. Being forewarned is being forearmed. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.