This is the first time since the report was first published in 2006 that an environmental risk has topped the ranking, and this year was considered to have greater potential damage than weapons of mass destruction (2nd), water crises (3rd), large-scale involuntary migration (4th) and severe energy price shock (5th).
Meanwhile, the number one risk in 2016 in terms of likelihood, was large-scale involuntary migration, followed by extreme weather events (2nd), failure of climate change mitigation and adaptation (3rd), interstate conflict with regional consequences (4th) and major natural catastrophes (5th).
The report, prepared in collaboration with Marsh & McLennan and Zurich by surveying 750 experts, revealed a risk landscape of unprecedented breadth, something its authors said had not occurred in the 11 years the report had been measuring global risks.
The only category not to feature is technological risk, where the highest ranking risk is cyber-attack, in 11thposition in both likelihood and impact, as Costa Zakis, head of client advisory services for Marsh Asia Pacific, told Insurance Business that while the perception of cyber risk may be dropping, businesses still need to remain mindful.
“I am of the thought that cyber itself is not a new risk, it is actually a risk that has been around a very long time, it is just that the nature of its presence is more obvious to a wider number of people,” Zakis said.
“The simple fact that we are so reliant on technology to do our work and we store so much information in that environment makes it more obvious to people.
“I think it is not necessarily an emerging risk, it is one that is really important but the issues that are coming to the top of the list this year are more reflective of what has actually been happening in the world in the past 12 months.
“Just because cyber has slipped from high on the list to 11th shouldn’t mean that you are saying to yourself don’t worry about cyber, because the supplement at the back of the report says there are a lot of business saying we need to keep our eye on cyber risk it is just that we have other issues coming up at the moment that are taking our focus.
“Don’t let that sleeping item fall off your radar as it could be the one that is actually the black swan that comes to get you.”
Zakis said that the report should allow brokers and clients to discuss the future plans of businesses as it will help guide discussion around risk issues.
“A broker can come in and talk to a client and say ‘look, there are a number of things that we are seeing in here that are the big trends in here.’ If you are a domestic operation, then the view on looking at what is impacting South East Asia and the Pacific are really important to you. If you are starting to look across borders, then the report should be guiding you to start looking at where you do business with,” Zakis continued.
“The report should be guiding the discussion between the broker and the client to expose a range of issues that are potentially a little bit thought-provoking because global risks on their own, by their nature, aren’t things that can be solved by an individual.
“An organisation is unlikely to be able to solve these issues on their own but they need to understand the impacts of what is coming up.”
In Australia, the most worrisome risk for executives was the asset bubble as Zakis said the link between high priced housing and its effects on business come can be improved through better understanding.
“Normally, you won’t find individual domestic real estate influencing business too much, what it does do though is it certainly should be getting businesses to make sure they have a good understanding of sums insured,” Zakis said.
“What that also drives is the view that banks and financiers have on organisations. If we have inflated property values and then they normalise at some point, what does that really mean in terms of asset values in terms of asset values for the purposes of insurance declarations but when you are then dealing with financiers they are saying are you over extended, are you in the range we want you to be in?”
Read the full report here.
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