Global interconnectedness is spreading major risks around the world

Global interconnectedness is spreading major risks around the world | Insurance Business

Global interconnectedness is spreading major risks around the world

Worsening economic and political tensions between the world’s superpowers over the coming year, as well as extreme weather and the failure to implement and stick to climate change policies over the coming 10 years are the top threats worrying nearly 1,000 decision-makers from across sectors, according to the World Economic Forum’s (WEF) Global Risks Report 2019.

Whether it’s a major earthquake that strikes Southeast Asia or the UK’s looming exit from the European Union, companies around the globe should be on guard for any and all threats that can disrupt their operations.

“In today’s interconnected world, no company is really insulated from what’s going on in other parts of the world,” said Barry Franklin (pictured), head of risk for Zurich North America. Notably, Zurich Insurance Group and Marsh & McLennan Companies were strategic partners in producing the WEF report. “You may think you are, but your suppliers probably have some connections or some dependencies on supply chains in other parts of the world. Because of the fact that we’re so interconnected, no company can just go on and assume that these things that happen in other parts of the world won’t affect them.”

Given the weather events in 2017 and 2018, it makes sense that natural catastrophes would be top of mind for respondents of the WEF’s Global Risks Perception Survey, the results of which underpinned this year’s report on global risks.

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“You’ve got increasing exposure in cat-prone areas, so I think that naturally the exposure to losses from these events is going to increase,” said Franklin, adding that, on the other hand, events like the recent partial government shutdown in the US as well as Brexit demonstrate the impact of geopolitical developments. “Any of those changes that have the potential to disrupt international trade could potentially impact companies in terms of business activity.”

The theme of interconnectivity and its implications for companies was hard to miss in the WEF’s report, which included a map showing how each significant global development, from the changing climate and rising income and wealth disparity, to an ageing population and rising urbanization, connected to a litany of related risks. Rising cyber dependency, for example, has ties to cyberattacks, data fraud or theft, critical information infrastructure breakdown, and, more broadly, demonstrates the adverse consequences of technological advances.

In fact, heightened cyber and technological threats were identified as a major potential blind spot in the report since we have not yet fully comprehended the vulnerability of networked societies.

“It stands to reason that we’re going to see an increasing frequency and, potentially, severity of cyber-related events, both intentionally caused by bad actors as well as accidental events, [such as] accidental releases of data and information,” said Franklin. “The increasing interconnectedness, the reliance on the Internet of Things [and] connected devices, these are all good things. We have the ability to better monitor machinery, equipment, and water systems to identify potential leaks and mechanical breakdown much earlier, but that requires those devices to be connected and it increases the vulnerability to outside actors.”

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At the same time as people are becoming more reliant on technology and digitization, the cyber threat environment is constantly reorganizing itself. While companies can keep trying to implement stronger cybersecurity protocols and top-shelf solutions, the threat environment will respond as well.

“It’s a constant battle to keep up with the sophistication and resources of those who want to take advantage of technical and technological vulnerability,” added Franklin.

Nonetheless, many boards and executives are paying attention to the risks associated with cyber – not only are they talking about this threat more often, but they’re doing more internally to better prepare for the eventuality of a cyber incident, according to the Zurich expert. The problem is those companies that have not taken this threat seriously and still believe that they don’t have the same exposure, thus making them less diligent about risk mitigation.

When it comes to extreme weather, there is little that an individual company can do to slow the effects of climate change or prevent natural catastrophes from occurring, but their executives can at least be ready to deal with the fallout from extreme weather events, from designing resilient supply chains to deciding where facilities are located and how much insurance they purchase at the outset.

“There’s not a single silver bullet solution that’s a comprehensive approach to risk management, and that general theme applies to technology and cyber risk as well,” explained Franklin. “[Companies] have to do everything they can to protect themselves, both in terms of the technological solutions and the protections that they implement as well as training their people, and educating them and making sure that they don’t create exposure unnecessarily.”