In the News
UK Group Warns of Emerging Risks in More ‘Volatile World’
Boards are now required to be aware of emerging risks, detailing procedures in annual reports.
- Robert O’Connor
- July 2019
Organizations that may have found themselves concentrating on obvious risks need to think more about the perils that are emerging in an “increasingly volatile” world, according to Airmic, the U.K. risk managers association.
“There is a danger that boards are spending too much of their limited time on more traditional risks, at the expense of emerging risks, which may be filed in the 'too hard' or 'less important' folder,” Airmic said in a statement accompanying a report it issued jointly with Marsh. The report was released at Airmic's annual conference in June.
Consideration of emerging risks is often relegated to the backseat, even though they can result in the biggest shock waves.
“The world is increasingly volatile, uncertain, complex and ambiguous, the report notes,” Airmic said in a statement. “This context has triggered the need to recalibrate risk management and rebalance efforts between managing traditional risks and emerging risks.”
Organizations, Airmic suggested, tend to look at material threats if they have relevant data in hand and a sense of how these threats might be expected to play out. At the same time, the group added, organizations might be “spending too much of their limited time on more traditional risks, at the expense of emerging risks, which may be filed in the 'too hard' or 'less important' folder.”
Airmic said company boards are now required by the U.K. Corporate Governance Code to be aware of emerging risks to the point of detailing their procedures in their annual reports.
Noting the difficulty of spotting and measuring emerging risks, Airmic said businesses should prepare to “think the unthinkable and speak the unspeakable” in relation to these issues.
“Consideration of emerging risks is often relegated to the backseat, even though they can result in the biggest shock waves,” John Ludlow, Airmic's chief executive officer, said in a statement.
Ludlow recalled how the United Kingdom's impending departure from the European Union has developed as a risk for businesses since the U.K. electorate opted for withdrawal in the 2016 referendum.
“Three years ago, Brexit was an emerging risk that many ignored,” Ludlow said. “Today we have the international rise in protectionism, trade tensions between China and the U.S., the impact of climate change, plus many more. There is no excuse for boards to say they did not see these coming, but it will require a change in mind set—emerging risks are more art than science.”
At its annual conference, Airmic said it will team with Aon plc to produce a guide for independent nonexecutive directors of captive insurance companies.
The guide will also consider the risks involved in appointing these directors and suggest how their performance might be assessed.