Risk is changing. Is your approach to risk evolving, too?
As the world emerges from the pandemic, and geopolitical tensions soar, risk managers need to think of risk much more holistically than they have traditionally, says Sonia Kundi, chief risk officer for Zurich Canada.
“I guess the thing that really jumps out to me…and we’ve seen it materialized with COVID 19, is the interconnectivity of risks,” Kundi says. “I think historically we’ve always looked at risks in more of a siloed approach…
“What we’ve seen through COVID, and through the Russia and Ukraine conflict, is that there is a huge interconnection of risk. You can’t look at things in isolation anymore. You really have to look at everything, and the potential knock-on effects.
“For example, we’ve seen how COVID and the [public health] lockdowns impact businesses and supply chain issues. And if you look at the conflict in the Ukraine, that increases the risk of cyber. And businesses have to deal with the cost implications of these events as well.”
Kundi spoke to Canadian Underwriter after the release of the World Economic Forum’s 2023 Global Risks Report in January, for which responses were solicited from more than 1,200 experts across academia, business, government, the international community, and citizens. The report concludes with the Top 10 concerns in each of the short-term (two years) and the long-term (10 years).
Short-term, the report groups issues into those related to a cost-of-living crisis, an economic downturn, economic warfare, climate change, and societal polarization.
Long-term issues include the permanent breakdown of natural ecosystems, human health (perma-pandemics, and chronic capacity shortages in the medical health care system), geopolitical conflicts, the erosion of digital privacy, and global economic stability.
Each of these risks has knock-on effects on the others, and the report speaks to the need to take a more holistic approach to risk in the future. “These present and future risks can also interact with each other to form a ‘polycrisis’ — a cluster of related global risks with compounding effects, such that the overall impact exceeds the sum of each part,” the report states.
For the future risk manager, scenario-testing will be key to preparing for the interconnected effects of these issues, says Kundi.
“We’ve always done scenario analysis on our material risks,” she says. “But I think what we’ll be doing now is looking at it more holistically. Not just how a risk would impact the organization in isolation, but all the other knock-on effects it might have.
“A risk manager will need to take a step back, look at the scenario analysis and say, ‘Okay, what can I do to really prepare for that? What can we do to minimize the impact on our business?’ By running different scenarios, you’re able to look at the actions you can take [and solutions you] can put in place should any of those [scenarios] materialize.”
Related: How better risk controls have helped Canada’s P&C industry thrive
To assess risks holistically, risk managers will need to work closely with everyone in the organizations they are trying to protect. Which means talking to people across the organization about the risks they face.
“You can’t do it on your own,” Kundi says of risk managers. “You really need to work with the business to fully understand the implications.
“For example, we have a cross-functional, emerging risks group that has people from different areas of the business. They bring a different perspective of [risks] that could potentially impact the claims environment, versus the underwriting environment.”
By working with employees across the organization, you “really get the full spectrum and understanding of the risk,” adds Kundi. “I don’t think risk managers should be locked in a room working in isolation on this. They have to be having these discussions with the people that are actually operating the business.”
Feature image courtesy of iStock.com/Mathisa_s
