Supply chain and environmental risks top the bill

Risk management

Management teams are struggling to handle new and emerging risks that could seriously damage their businesses, according to research by ACE Group.

The insurer surveyed 650 companies in Europe, the Middle East and Africa (EMEA), and found that lack of management attention on certain topics is the main problem.

This is compounded by lack of skilled resources, management tools and processes, according to the ACE EMEA emerging risks barometer 2013.

In the survey, company leaders said supply chain/infrastructure, environmental, cyber and D&O were the risks most likely to cause financial damage to their businesses in the next two years.

ACE European Group president Andrew Kendrick said: “Our research suggests that emerging risks have not yet become embedded in board level discussions on wider risk management issues.

“Fifty-seven percent of our respondents in EMEA cite lack of management attention as the biggest barrier to emerging risk management, and this leads in turn to the second and third challenges – lack of human resources and lack of risk management tools and processes.”

Nearly half (45%) of businesses said that they expect supply chain and infrastructure riskto have a significant financial impact on their company over the next two years.

Sophisticated global supply chains have driven down costs for many companies, but businesses are paying the price through a lack of visibility into where risk exposures lie. Compounding these issues, many companies are reliant on creaking civil infrastructures, the security of international energy and power supplies and other challenges which expose them to severe financial risks in the event of business interruption.

Environmental risk ranked second, with 42% categorising it as one of the emerging risks most likely to have a negative financial impact on their business.

With tougher government regulation and more vocal stakeholder concerns, companies are being held accountable for their environmental impact as never before.

Respondents ranked cyber risk joint third, with 40% viewing it as one of the emerging risks most likely to affect their business.

In recent years, cyber risk has become virtually unavoidable as companies become increasingly dependant on technology to do business. More than one-third of companies cited viruses (49%), hacking (38%) and data theft by third parties (37%) among their greatest concerns.

However, the majority of companies also said that the greatest threat often comes from within – 63% of firms said that employees and internal failures can often pose a bigger threat than cyber criminals.

Although not a new threat, D&O liability risk is constantly evolving against the backdrop of financial crises, changing regulation and growing international footprints. It ranked joint third, with 40% of companies stating that it could present a significant financial threat over the next two years.

Notably, in the wake of increased scrutiny post-crisis, respondents highlighted reporting errors as their greatest worry, followed by concerns about exposures to bribery, fraud and corruption.

Kendrick added: “We know that real world events do not respect neat categories, and that many of our emerging risks are interconnected today.

“By paying greater attention to this complex and interlinked array of emerging threats and challenges, risk managers can help their organisations to put their strategic plans on a sustainable footing. And, by working with them in a collaborative way and taking a strategic approach to their client relationships, insurance brokers and underwriters can help them ensure that these emerging threats become an integral part of their approach to enterprise-wide risk.”