Long-tail risks have become an important part of the risk landscape: Aon survey
- Published: Wednesday, 27 October 2021 08:03
Aon has published the results of its 2021 Global Risk Management Survey, which gathers input from thousands of risk managers across 60 countries and 16 industries every two years to identify key risks and challenges their organizations are facing.
The past two years have proved to be incredibly volatile, with the global COVID-19 pandemic having had a ripple effect across other types of risk, such as heightened awareness of reputation and cyber, as long-tail risks have become increasingly important to manage.
The 2021 edition surveyed more than 2,300 respondents in 60 countries across 16 industries at both public and private companies.
With more emphasis and reliance on technology, cyber risk topped the list as the number one current and predicted future risk globally, its highest rank since the inception of the survey. Cyber was also cited in the top 10 list of risks across each region, industry, and respondent type.
The top 10 risks also strongly reflect the current landscape, namely COVID-19 and its impact on organizations. Amidst a backdrop of challenging market conditions, this is testing the ability of firms to manage volatility and make better decisions. Organizations are shifting their focus from event-based to impact-based risk assessments: for example, business interruption was once seen as a linear risk, but the COVID-19 pandemic has demonstrated how it can affect multiple industries and companies simultaneously and globally.
"The world is a more volatile place and the importance of better decision making has never been greater," said Lambros Lambrou, Aon's CEO of Commercial Risk Solutions. "Long-tail risks are not single events. They're innately interconnected, as we've seen with the COVID-19 pandemic fundamentally changing the way the world works, revealing new risks and re-ordering priorities in the C-suite. A preoccupation with managing these immediate risks may be compromising firms' ability to invest in the risks of tomorrow."
Exacerbated by the COVID-19 pandemic, and highlighting the interconnectivity of risk, the top 10 global risks according to the 2021 Global Risk Management Survey are:
- Cyber Attacks/Data Breaches
- Business Interruption
- Economic Slowdown/Slow Recovery
- Commodity Price Risk/Scarcity of Materials
- Damage to Reputation/Brand
- Regulatory/Legislative Changes
- Pandemic Risk/Health Crises
- Supply Chain or Distribution Failure
- Increasing Competition
- Failure to Innovate/Meet Customer Needs.
"Historically, risk managers and insurers have learned and made decisions by analyzing data from loss events as they have occurred. This approach must evolve in order to proactively manage emerging exposures such as complex supply chains; we can't rely solely on the past to inform future risks," said Rory Moloney, Chief Operating Officer for Enterprise Clients at Aon. "Several of the top risks identified in this year's survey highlight four key areas of client need we've identified, particularly unmet needs in the form of long-tail risks that are no longer on the horizon. Those risks are on our doorstep. There is an increasing realization of the need to address these 'known unknowns.' As we face unprecedented events, the challenge will be how to best develop solutions to properly prepare for and manage through them."
The report highlights the top 10 risks by industry and region, as well as risk readiness, associated losses, and mitigation actions for each of the top 10 risks. In addition, the report includes the predicted top 10 risks in the next three years and Aon's analysis of underrated risks.
What are long tail risks
Long-tail risks are risks which have a long time period between the start of exposure to the hazard and the materialization of related impacts.