Global economy magnifies terrorist, political, environmental, cyber risksPosted On: Mar. 22, 2016 12:00 AM CST
NEW YORK — The terrorist attacks in the European Union capital of Brussels highlight the increasing risks posed by globalization and risk managers' evolving role, a top executive at Willis Towers Watson P.L.C. said Tuesday.
“For the most part, globalization has been hugely beneficial,” Dominic Casserley, president and deputy CEO of Willis Tower Watson, told attendees of Business Insurance's Risk Management Summit in New York. “Increasing trade flows, improved communications technology and easier movement of people, goods and services has created huge opportunities for nations, companies and individuals to prosper.”
However, the interconnectedness of globalization highlights three key areas of risk: geopolitical, climate and natural resources, and cyber, he said.
“The world, unfortunately, has always been a complicated and often dangerous place — political upheaval, civil war, terrorism, sanctions, economic strife — have unhappily always been with us,” Mr. Casserley said. “Today's news of Brussels is a tragic illustration of that point.”
The political risks of most concern include ongoing turmoil in the Middle East and the resulting migrant crisis, the “potentially more dangerous” tensions on the Korean peninsula and the “immense strain” on the European Union, including a June referendum on a potential exit by Great Britain, Mr. Casserley said.
But companies still need to create shareholder value in these markets despite political instability, he said.
“The lesson is not to shut up shop and retreat,” Mr. Casserley said. “It is possible to do business profitably in a volatile world, provided you understand the risks and price them accurately. It's never been more important to evaluate your company's individual exposures and make sure resilience is built into your trading or investment decisions.”
Climate and natural disasters also are risks that can cause major disruptions to the world economy, partly due to the globalization of supply chains and development in vulnerable locations, he said.
Cyber risk barely registered 20 years ago, but was ranked the No. 1 threat to U.S. businesses in 2016, Mr. Casserley said.
“The high costs of cyber attacks are exacerbated by a relatively immature insurance market” with limited insurance capacity because the industry does not have the data needed to accurately assess and price the risk, he said. “Over time, we do believe the insurance market will mature. Until then, however, cyber risk will remain a real challenge to corporate resilience, in part simply because companies can't insure against it.”
Given increasing globalization-related risks, corporate risk managers should become strategic partners inside their companies to create value as well as protect corporate assets, Mr. Casserley said.
Risk managers also must prepare for an increase in regulatory oversight and controls, including requirements to increase climate-related financial disclosures, and to prove the resilience of their companies as investors and capital providers become more risk-sensitive, he said. They also need to broaden their toolkits to consider human capital and employee engagement and break down organizational silos to cultivate an integrated view of risk.
“We need to take an enterprisewide view of risk and a multidisciplinary view of risk management,” Mr. Casserley said.