Richard Waterer, Managing Director, Aon Global Risk Consulting says risk management will be needed more than ever as the threat of global shocks rises.
2020 was perhaps the most challenging year ever to be a risk professional. A global pandemic causing unprecedented interruption, many developed economies plunging into their deepest recessions since records began, and insurance market conditions as tough as we have seen for two decades. What does 2021 hold?
The pandemic lingers
2021 will see vaccines reduce the pandemic health burden, but the economic burden is likely to remain for years to come. This will force companies into rethinking their business plans and priorities, which in turn will accelerate existing and emerging risks.
Companies will recognise the economic and lifestyle benefits that remote working has brought during the pandemic and will redesign a future of work around an evolution of these arrangements. At the same time, industries including manufacturing and life sciences will double-down on their automation programmes and the increasingly sophisticated use of data and analytics, including the adoption of AI. These factors will rapidly change the cyber risk posture of many firms, leaving them vulnerable to attack on a systemic scale.
Supply chain leaders will trade cost for certainty, in some cases swapping complex international supply chains for regional ones, with more strategic use of inventory. This will create a change in risk profile, while not helping the ongoing US / China trade disputes.
The next major shocks
A recent Aon survey of over 500 international firms highlighted the following global shocks as being top of mind for business leaders:
- Geopolitical tension: changes in the US administration and the ongoing uncertainty over Brexit may trigger tax and regulatory reform, impacting trade and confidence.
- Another health crisis: while the world dealt with COVID-19, cancer patients went untreated, and lifestyle diseases, such as diabetes, increased. The next health crisis may not originate from a pandemic.
- Climate change: pressure for climate-related financial disclosure, growing ESG expectations from stakeholders and continued natural catastrophe events will result in climate change risk being ever-present in 2021.
The time for risk management
These emerging risks and potential shocks will continue to place demands on the risk professional. Key areas of their focus in 2021 will include how to better prepare for shocks; how to provide assurance of governance to the Board and shareholders; how to enhance the valuation and protection of intangible assets, such as IP and reputation; and, in a period where insurance costs continue to increase, how to balance retention and transfer strategies, to stabilise the total cost of risk.