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The Fifth Emerging Risks Survey

As the vast amount of global risks continue to increase, corporate strategic risk management is finally getting the C-suite decision-making attention it deserves, according to a new survey of members of the Joint Risk Management Section of the Society of Actuaries, Casualty Actuarial Society and Canadian Institute of Actuaries.

The fifth annual Emerging Risks Survey report is based on quantitative and qualitative research that was designed to measure and evaluate the role of strategic planning and the evolving emerging risks that affect the decision making process. It was conducted by Rudolph Financial Consulting, LLC and sponsored by the Society of Actuaries, Casualty Actuarial Society and Canadian Institute of Actuaries.

According to the findings, risk managers were recognized for avoiding a risk in 48 percent of the responses, while only 31 percent were held accountable when a risk that had not been previously identified arose. Further, when a strategic opportunity is being considered, 84 percent have input to the discussion or can advise against the pursuit of a strategic direction if the risk is significantly greater than the reward. Only seven percent reported having no input. Seen as a potential leading indicator, the data is showing how risk management is getting a seat at the table for strategic discussions.

The top emerging risks that respondents cited (they could list up to 5) are: financial volatility (68 percent), failed and failing states (42 percent), cyber security/interconnectedness of infrastructure (38 percent), a Chinese economic hard landing (32 percent), oil price shock (32 percent) and regional instability (32 percent).

From a broader perspective, the emerging risk categories that garnered the most concern from risk managers are: economic (56 percent), geopolitical (22 percent), technological (8 percent), societal (5 percent) and environmental (4 percent).

"Since the previous iteration of this survey in 2010, a number of events have influenced the thinking of risk managers," said Max Rudolph, FSA, CERA, CEO of Rudolph Financial Consulting, LLC. "While the Japanese devastations and the Arab Spring were the two events with the largest worldwide implications, other events included the European sovereign debt crisis and the largest economic impact of physical disasters in history. This only underscores that risk management is an evolving discipline."

The research also shows that management teams seem to better understand that it is not the risk manager's job to predict the future, Rudolph noted. While 77 percent of respondents felt in 2010 that their firms expected them to be predictive, now more than half (57 percent) specifically say that is not part of their job. Many respondents reported that part of their job is to generate potential scenarios and their implications, maintaining flexibility, rather than predict the actual scenario that ultimately occurs. For 2012, 59 percent expect increased enterprise risk management activities, while 39 percent expect increased funding.

"The job of a risk manager can be difficult," said Rudolph. "Few want to listen to warnings, but once a risk has surfaced you don't want to be the chief risk officer with no plan in place. As Nassim Taleb has said, once a Black Swan has revealed itself many will say they predicted it in advance. Of course, in reality, most did not, and certainly few made any effort to mitigate the risk."

As time passes from the initial financial crisis, trends are becoming apparent and new metrics are being developed to measure the mood of the risk community, according to Robert Wolf, staff fellow, Risk Management at the Society of Actuaries.

"Most risk managers are providing input and having a say when new opportunities are considered, and enterprise risk management activity is expanding," Wolf said. "It's definitely a step in the right direction, but one, like the risks they're addressing, that needs to keep evolving."

The complete survey report can be found here (PDF).

•Date: 20th April 2012 • N.America •Type: Article • Topic: Enterprise risk management

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