Emerging Risks

By Max Rudolph

OVER THE PAST YEAR THERE HAS BEEN lots of publicity about cyber security risk. Data breaches and NSA surveillance may be top of mind, but a host of emerging risks show concerning signs and interaction possibilities. In the 7th survey of emerging risks, a group of risk managers shared their thoughts about current and future risks. Trending up are risks sur- rounding greater regulatory focus and cyber security, with oil price shock trending down as supplies have picked up.

Emerging risks look across longer time horizons, 10 years or more, and for outliers that would create disruption to business as usual. An earthquake in Los Angeles or a hurricane in Miami could be a horrific event for those living through it, but historical data shows the likelihood of such events to be high when viewed across centuries or millennium. Emerging risks look at events like plague or space weather that tend not to be considered when making business decisions. These risks evolve over many years, so one would expect stability in risks considered.

Over five years have passed since Bear Stearns and Lehman Brothers ceased to be independent. While many risk managers are concerned about the calm in today’s markets, the truth is that they have more time to think about risks that might not impact them for 10 years than they did in 2009. This shows up in trend data and the concentration of risk combinations.

In the year since the previous survey, equity markets and oil prices continued their trend upward, while the dollar reversed course and strengthened versus the Euro. Here are the top six responses, when asked for the top five emerging risks (percentages based on number of surveys).

1. Financial volatility (59%)
2. Cyber security/interconnectedness of infrastructure (47%)

3. Blow up in asset prices (30%) 4. Demographic shift (30%)
5. Failed and failing states (29%) 6. Regional instability (29%)

This represents shifting pattern away from geopolitical and economic categories and toward technological, societal and environmental. Here are the top five choices from a year ago.

1. Financial volatility (62%)
2. Regional instability (42%)
3. Cyber security/interconnectedness of infrastructure (40%)
4. Failed and failing states (33%)
5. Chinese economic hard landing (31%)

Excerpt from Risk Management, August 2014

Read the full survey report at SOA.ORG

Explore posts in the same categories: Enterprise Risk Management

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