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How safe was your year?

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While one suspects that a large proportion of risk managers may like to spend their entire working lives locked away in an ivory tower, devising the perfect enterprise-wide risk structure or ultimate lawyer-proof liability contract, it just does not work that way.

Things happen in the outside world that just cannot be ignored and, given that most risk managers count protection of the company's core assets and planning for volatility among their main responsibilities, they have to be dealt with sooner rather than later.

Even if the risk manager cannot prevent the external disaster or crisis from occurring or hitting the bottom line, he or she better be sure they considered it and thought about what could and should be done if it happened.

Thus 2006 followed on from an exceptionally busy 2005 with fewer dramatic events like Hurricane Katrina or the Asian tsunami, but a huge amount of food for thought and external 'disturbance' all the same.

Albright

Former United States Secretary of State Madeleine Albright captured the mood in the European risk management community neatly when she told Business Insurance Europe that the big three risks facing business and society at large in the 21st century are climate change and energy security, health pandemics and terrorism.

Climate change and energy security have certainly topped the agenda in most businesses all year around.

The series of hurricanes in the Gulf ofMexico—and in particular the destruction of New Orleans—combined with the tsunami in Asia and even the exceptionally hot and dry summer during the football World Cup in normally temperate Germany this year—may well have scientifically been pure coincidences.

But this is a highly politicized area, with vast sums of money, and big reputations and egos at stake.

Thus, those that believe that mankind is directly causing climate change and can stop and even reverse it, have gone into overdrive and are fast gathering support in the highest of circles.

The sheer strength of support for the pro-change lobby provided by Sir Nicholas Stern in his report for the British government and the reasonably aggressive stance taken by the European Commission on carbon emissions at the United Nations Kyoto meeting in Nairobi, should have blown away any misconceptions by European boards that this would simply go away.

Whether the science is correct or not is irrelevant. The process is under way and companies have to deal with the consequences, whether they like it or not.

Energy security and terrorism are much more tangible threats. Even if the underlying causes of the problems are as murky as with climate change, it is a simple fact that the global economy can be seriously influenced by the demand, supply and price of energy. This was shown vividly this year when the price or oil rocketed to unprecedented heights.

Oil spike

Uncertainty over supply from the Gulf of Mexico of course played a role in the oil price spike. But the main reason was the growing uncertainty over the direction of the war in Iraq, which in itself remained the main driver of the terrorist threat worldwide.

Experts maintain that the world was actually a safer place in 2006 than in previous years, as the number of major incidents and resultant fatalities was well down, so long as deaths in the "official" 'war zones such as Iraq and Afghanistan are not included.

Maybe it was, but the point—as with the climate change debate—is that it certainly did not feel like a safer year. Serious problems in nation states such as North Korea and Russia reared their ugly heads, and forced many businesses to rethink their strategies in these countries and surrounding regions. More tellingly, their confidence in the democracies of the developed industrialized world to cope with such threats was seriously undermined.

The third big risk identified by Ms. Albright that risk managers really cannot rely upon governments to fix before or after it happens, is the rise of pandemics on the back of the seemingly irrevocable march of globalization and migration.

In some ways, risk managers fear this threat the most because it is the most random, difficult to defend against and personal. Throughout the year, fears over this threat have grown steadily. As with the other two big perceived threats, it is currently a lot more talk than reality. According to the World Health Organization, "only" 258 cases of avian flu have been reported to it so far with 154 deaths, which is not a pandemic by any means. But, the threat is real according to many experts, and risk managers all over Europe in the public and private sectors are treating this seriously.

One of the biggest risks cited by risk managers this year, however, does not fit into the same category of random catastrophic outlier category as the above three but is perhaps more pressing. That risk is of course regulation.

In Europe in particular, there is a tendency by national governments and the European Commission to react to real and perceived threats with new and seemingly ever-more complex rules.

Risk managers welcome with open arms more recent efforts by national governments, regulators and the EC itself to take a step back and try and cut down red tape. Whether or not they will be able to resist their natural urge to make up new rules for any actual or simply perceived problem as we enter the New Year remains to be seen.