Page 12 - Risk Management Bulletin February 2024

RMAI BULLETIN FEBRUARY 2024

year. As the second leading response, a decline in the occurred, such as the number of auto insurance poli-
value of the U.S. dollar continues to be a major con- cies in effect or widgets sold. A leading indicator pro-
cern. vides information prior to the occurrence of an event.
Examples include insurance applications that are sig-
It is intriguing to consider the consequences of the nificantly higher or lower than anticipated or an in-
differences between Charts 1 and 2. In Graph 1, where crease in a supplier's credit default spread. Over half
the survey asked for five emerging risks, the Geopo- of the respondents reported having at least some lead-
litical Risk topped the list. However, when asked about ing indicators for emerging risks, but efforts are still
the top emerging risk overall, the geopolitical category evolving and the current situation is frequently "flying
is significantly lower than it was in 2009, whereas the by the seat of one's pants."
economic category remains high.
ERM requires a balance between opportunity and risk
Each year, respondents are asked to select risk combi- mitigation, as well as qualitative and quantitative
nations that could have an impact on a potential event analysis. In addition to increased model sophistication,
in response to a topical issue. Prior questions ad- risk managers in this survey reported incorporating
dressed regional food shortages and political instabil- more common sense and creativity into their analysis.
ity, and each has since proven to be pertinent. This
survey examined China's financial ties with the rest of Mitigation
the world.
Identify and evaluate emerging risks The first step is
to identify emerging risks and evaluate their likelihood
Respondents were primarily asked to consider cur-
and potential impact. This can be accomplished by
rency, commercial, and investment relationship
conducting risk assessments, scanning the horizon, and
changes.
keeping abreast of emerging trends and developments.
After identifying and assessing potential risks, create
Respondents were asked to list up to three potential
a risk management plan that outlines strategies for
dangers. Almost three-quarters of the selected risks
mitigating these risks. This plan should include specific
fell under the category of Economic risks.
measures to reduce the probability and severity of
1. 73% Economic
emerging risks.
2. 19% Geopolitical
3. 4% Environmental Invest in appropriate risk management measures.
4. 1% Societal
To mitigate emerging risks such as climate change,
5. 5% of the Technological
organisations can implement sustainable practises such
as reducing energy consumption, increasing the use of
The top two specific risks chosen were a near tie be-
renewable energy sources, and minimising waste.
tween a decline in the value of the U.S. dollar (24
percent) and a Chinese economic hard landing (23
Providing employees with regular training on how to
percent) (23 percent).
identify and mitigate emerging risks can contribute to
the development of a risk-aware and resilient
Oil price shock (16 percent), retreat from globalisation
organisational culture.
(9 percent), and asset price explosion rounded out the
top five (6 percent).
Collaborate with peers in the industry and government
agencies: Collaboration and information sharing be-
Leading Indicators tween peers in the industry and government agencies
As businesses implement their ERM processes, many can help identify emerging risks and develop appropri-
are developing metrics based on KPIs. ate mitigation strategies.

A lagging indicator collects data after an event has Regular reviews and assessments can help to ensure

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