The world-changing impacts of the COVID-19 pandemic have highlighted the risk of pandemics and infectious diseases globally, with it topping a recent survey of emerging risks.
The 14th Annual Survey of Emerging Risks, conducted by the Canadian Institute of Actuaries, the Casualty Actuarial Society, and the Society of Actuaries, found that 45% of respondents chose pandemics/infectious diseases as the largest current risk. This was much larger than the previous first place risk, climate range, which dropped from 16% in 2019 to 11% in 2020.
COVID-19 had a much larger response among the risk management community compared to previous disease outbreaks, such as H1N1 influenza in 2009, which only registered 3%, while Ebola in 2014 got 8%.
However, climate change remained the top emerging risk, being identified by 26% of respondents, followed by the risk of disruptive technology (15%).
According to Max Rudolph (pictured), fellow of the Society of Actuaries and the main author of the report, pandemics were already a top 10 emerging risk, so it was previously on the radar for risk managers.
“In last year’s survey we asked a question about undervalued risks, and pandemics/infectious diseases were third behind only climate change and demographic shift,” Rudolph told Corporate Risk and Insurance. “Going forward I expect the increased awareness of pandemics to reflect what was learned during this event. For insurers this could mean product design changes around business interruption and disability policies.”
In order, the study’s top five emerging risks were climate change, disruptive technology, pandemics/infectious diseases, financial volatility, and wars.
In Rudolph’s opinion, risk managers should anticipate financial volatility to rise in the coming years.
“The global economy was stressed prior to the pandemic and was then flooded with stimulus, so I expect risks like financial volatility to take center stage over the next several years,” he said. “The survey goes back to 2008, and the initial responses were dominated by economic risks. I expect the survey could cycle back to those risks after a long period where they have consistently declined.”
Doing more with less
Aside from current and emerging risks, the study also delved into the nature of risk managers’ work. One major finding was that risk managers are being asked to do more with fewer resources. A majority (53%) of respondents reported increased activity in 2020, but only 15% saw their staff numbers grow. Close to four in 10 (38%) expect this trend to continue in 2021. A tenth of respondents also expect funding for risk management to fall in 2021. The corner-cutting comes at a time when risk managers’ skills are severely needed.
“Risk management walks a fine line, trying to balance adherence to a chosen risk appetite against the cost of the unit,” Rudolph said. “The longer an organization goes without a risk event the more likely it is to cut back on its risk team. This can be partially offset by having the unit go beyond downside risks and become involved in strategic risk management. Because the risk team looks at risk interactions and risk aggregation across all business lines, with the right people and risk culture in place it is best positioned to identify risk opportunities.”
The survey, which was conducted in November 2020, included 188 respondents, majority of which were from North America but also included representatives from Europe, Asia-Pacific, Latin America, the Middle East, and Africa.