Global Risks Report 2023 – the standout themes and where insurance fits in | Insurance Business Canada
An initial perusal of the World Economic Forum (WEF)’s Global Risks Report 2023 might leave the reader with the sense that the tumult of our external risk environment is too challenging for most businesses to successfully navigate.
Yet by the reckoning of the self-acknowledged “eternal optimist” Carolina Klint (pictured centre, right), risk management leader, Continental Europe at Marsh, there are viable opportunities ahead to utilize increased collaboration and innovation to mitigate these risks – and insurance is well-poised to seize those opportunities.
Discussing the findings of the report, which was issued yesterday by the WEF in collaboration with Marsh McLennan and Zurich Insurance Group, Klint emphasised how the volatility of the current risk landscape and the interconnectivity of the key risks identified will have an impact on how businesses look at their strategies and investment decisions going forward. From conversations with companies about their risk outlooks, she said, she has seen their lists of concerns growing longer and longer.
“There are a couple of themes that stand out,” she said, “and one is navigating the inflationary environment and the cost-of-living crisis. But it’s also about access to raw materials and components and, of course, securing those supply chains and making sure that those are a little bit more solid. And I think all of those concerns are closely linked to the compounding risks outlined in this year’s report.”
No country is immune to social erosion caused by the lack of affordability and availability of basic necessities, she said, and it’s critical that the wider market recognises that cost-of-living pressures and food insecurity could provoke civil unrest and instability. Rising fuel prices led to protests across several countries last year, and businesses need to keep an eye on these political risk scenarios, as well as the increased geopolitical tension in the world, as it creates complexity in terms of managing risks in supply chains.
The war in Ukraine has impacted access to raw materials and minerals, Klint noted, but it’s also led to sanctions and trade restrictions which have had an impact on other goods and services as well. As a result, the supply chain is now turning from a ‘just-in-time’ approach to more of a ‘just-in-case’ strategy. What this looks like for businesses is the move to bringing production closer to home - as well as increased nearshoring, friendshoring and stockpiling.
“We also see a trend of vertical integration, meaning that companies are actually looking to acquire both suppliers and clients in order to take control of the whole chain. So, that’s an interesting trend to watch,” she said. “I think the relative predictability of the business environment has gone down, which is really forcing companies to allow more slack in the system, and be more willing to invest a little bit more upfront in order to stay in business and build the needed resilience.”
Secure energy is also crucial for supply chain resilience, Klint said, and Russia’s invasion of Ukraine has highlighted Europe’s energy vulnerability. Amid all the energy crisis challenges, companies must remain committed to long-term climate ambitions to solve the underlying issues and she believes investments in speeding up the green energy transition should be central to enhancing energy security.
As to what can be done about this confluence of external risk factors, Klint identified the need for businesses to take a step back and start planning for the unexpected. Generally speaking, she said, most of the things businesses worry about tend to be too short-term orientated and modest. Taking a longer-term, holistic overview of the risk environment as risks arise and making sure you have the diversity of experience and thought around the table to allow you to think differently and come up with new solutions is essential.
“I think the insurance industry has a huge role to play,” she said. “Both in terms of providing reliable data and giving a view on best practice – what does good look like and what are the mitigation efforts that will actually have an impact? So, I think in terms of data, there’s a huge role for insurance to play but also in other functions.
“If you look at the risks now being judged as almost uninsurable… playing a role in the public-private partnerships needed to address those protection gaps is a huge [opportunity] for insurance companies. Because I don’t think it’s fair to say that private companies in insurance should carry the cost for that because that’s just not realistic. But them playing a role in terms of designing solutions and then carrying part of the cost, with that governmental backstop, I think could be a good [outcome].”
There are significant opportunities for insurance businesses when it comes to creating solutions that will mitigate the most pressing risk factors – be that around the cost-of-living crisis, the energy transition or the ever-evolving spectre of cyber risk. And these are being augmented by the present opportunity for business leaders to move away from risk management to more strategic resilience.
“And with connecting risk with strategy, there’s an opportunity to capture the positives and the opportunities that come with the direction of change,” she added. “So, staying in business, remaining relevant, adapting to a changing customer base - all of those are actually really positive opportunities, if you choose to look at it that way.”
Klint has seen first-hand how the concept of risk has become a top-of-the-agenda topic for executive management teams. It’s a change that has largely been driven by the volatility of the last few years, she said, and recognition of the evolving nature of risk, and the interconnectivity and complexity of the risk environment. Companies have felt the impact of not focusing enough resources on building resilience, particularly as a result of lessons learnt during the pandemic.
Examining whether the increased attention paid to resilience-building measures is likely to fade away any time soon, Klint highlighted that the risk environment is unlikely to slow down in terms of its complexity or its interconnectedness. She expects to see more systemic risks on the horizon, she said, and, as a result, the new voice for resilience at board tables is likely here to stay.
What are your thoughts on the key risks identified by the Global Risks Report 2023?