Which emerging risks do companies think are important? And are they doing anything about them? Nathan Skinner analyses the results of our readership survey.

From flu pandemics and terrorist attacks to dramatic fluctuations in global weather patterns, today’s organisations face a new breed of risks. Practically daily, fresh reports appear detailing the financial, social and human cost of the latest catastrophe. But how well prepared are companies to protect their employees and ensure the continuity of their businesses in the event of an incident? StrategicRISK teamed up with sister publication, Global Reinsurance, the market-leading magazine for the reinsurance industry, to unearth senior risk professionals’ opinions on emerging risks and discover what they are doing to prepare.

The biggest fear for most European risk managers is the threat posed by a pandemic. 64% of StrategicRISK readers said this constituted a genuine concern; followed by cyber terrorism (63%) and terrorism (61%). A little over half of the risk managers were concerned about global climate change (56%), natural disasters (56%) and economic recession (56%). In line with these findings most respondents said their company had taken steps to prepare for pandemics (74%), natural disasters (63%), terrorism (55%) and IT risks (55%). But fewer had taken steps to respond to the long term environmental and economic impacts of climate change (36%). And less than a third (28%) had prepared for an economic recession. Response to a pandemic

Some respondents seemed to believe the risk of a pandemic had been overemphasised: ‘The turmoil around pandemic risk seems a little exaggerated,’ said one risk consultant. While this was not a view shared by all, it was clear from further comments that much clarity was missing from the debate.

Many appeared keen to stress the need for a coordinated global strategy to deal effectively with a disease outbreak: ‘There should be more activities made by governments and inter-state agreements,’ said one head of insurance. The real risks arising from a flu pandemic were interpreted as the impact on people’s lives, such as travel restrictions and loss of staff. The lack of availability of raw materials and medicines to deal with a global epidemic were common themes among the risk managers. A typical comment was: ‘Our main concern is the ability to continue offering key services with potentially depleted resources.’

The unpredictable effects of a pandemic on the global economy were highlighted by others: ‘A future pandemic will not be contained in any specific region, unlike most of those in the past, so it represents a global threat with several knock onrisks,’ said a legal advisor to one reinsurance company. The ease with which infected migratory birds can transcend any and all barriers to the spread of pandemic diseases was raised by another Global Reinsurance respondent.

Of less immediate concern to our risk managers were the human health risks as a result of nanotechnology (19%), radiation from wireless technologies (21%) and population surge in developed nations (21%). Notably, just over a quarter were concerned about significant reductions in access to clean water (27%). Most were undisturbed by the agriculture or human health risks as a result of genetically modified (GM) crops; only 16% thought this was a serious risk. One local government risk manager, however, warned against complacency towards human health risks: ‘These are very real risks which people don’t attach enough importance to,’ he said. Fewer than 10% of respondents had taken steps to prepare for these emerging risks, possibly reflecting the view that individual corporations simply can’t mitigate against certain risks.

Of most concern to the readers of Global Reinsurance were natural disasters (82%), terrorism (76%), the environmental and economic impacts of climate change (71%), followed by economic recession (59%), pandemics (53%), and cyber terrorism (47%). Similarly to the risk managers, fewer - around one quarter (24%) - of the reinsurers were concerned by population surge in developed nations as over population, climate change and scarcity of resources drive mass migration, and fewer than 10% were seriously worried about the human health risks of wireless radiation, nanotechnology, or GM crops. Strikingly, while 35% of reinsurers admitted to concerns over lack of access to clean water, none had taken steps to prepare.

In a result that seems to reflect their own business continuity strategies, almost two thirds of the reinsurers (60%) said they had prepared for pandemics and 40% said they had taken steps to prepare for IT related risks. Sixty per cent of respondents had also taken steps to address the two other major risks - natural disasters and terrorist attacks. Less than half (47%) had taken steps to prepare for the environmental and economic impacts of climate change. And about a third (27%) had made preparations for an economic recession.

On the steps companies had taken to prepare for emerging risks, business continuity planning (BCP) was the most favoured move, with the vast majority of reinsurers and risk managers choosing to prepare a plan, reflecting an overarching theme in risk management.

In addition, well over half of those surveyed had implemented a communications or information flow plan (59% of risk managers and 44% of reinsurers). The BCP methodology surfaced as a popular approach for dealing with, in particular, a pandemic crisis - 73% of the risk managers who chose pandemic as a serious concern had also prepared a continuity plan.

Actions taken – or not

Interestingly, of the respondents from both magazines who chose terrorism as a risk, only about half (53%) had also prepared an evacuation plan or practiced what to do in an emergency. And only around a quarter – 22% of risk managers and 25% of reinsurers – had taken out additional (re)insurance policies to cover any of the emerging risks.

While these findings seem to vindicate the view that insurance is insufficient to save a business in the event of a disaster, only 40% of our risk managers and 25% of the reinsurers said they had established a specific operations centre to be used as a command centre during an emergency.

Furthermore, less than half – 42% of risk managers and 44% of reinsurers – said they had researched or modelled the nature of the risks. Encouragingly, only 37% of risk managers and 25% of reinsurers felt the need to seek third party advice.

While planning and training were popular precautions, these were linked to the realisation of the need to be able to react to the situation as it arises. ‘We have prepared contingency plans for pandemics, but I believe they are likely to be of little use unless the pandemic hits on just one continent. If the global scenario hits, I think we will just have to close down and see what remains afterwards,’ said one director of risk management.

The most common reason given by both sets of respondents for not taking action was because they felt the risk was not relevant to their organisation - 53% of risk managers and 57% of reinsurers gave this response. Meanwhile, 38% of the risk managers and 29% of reinsurers said they had not taken steps because the threat was purely theoretical. One fifth of those surveyed did not take steps to mitigate because they thought the risk was too large to manage. Around one in 10 said they believed the risk was not their responsibility. 33% of risk managers, compared with 14% of reinsurers did not take steps to mitigate because they thought the risk was too expensive.