Governments and industries must unite to tackle risk

Governments and businesses must unite to tackle the world’s biggest risks if society is to prevent some having a devastating effect on the global economy.

That was the key conclusion of a report by The World Economic Forum, which is backed by Swiss Re, Zurich Insurance and Marsh & McLennan.

According to the report: Global Risks 2014, the widening wealth gap, natural catastrophes, unemployment and cyber attacks were among 31 top risks which could have a disastrous impact on the economy or industry over the next decade.

“The capacity to solve global problems is weakening,” said John Drzik, president of global risk and specialties, Marsh & McLennan Companies. “Countries are prioritising short term domestic issues over long term global ones. To move forward we need to strengthen institutions and create more public and private partnerships to address new issues.”

Some 700 global experts participated in the report which took insight from the universities of Oxford, Singapore and Pennsylvania, to look at five key risk areas: economic, environmental, geopolitical, societal and technological.

Jennifer Blanke, chief economist, senior director, global competitiveness and benchmarking, World Economic Forum explained that while some individual risks may not have been a huge concern globally, if these risks occurred at the same time, they had the ability to cause a devastating impact.

“Each risk considered in this report holds the potential for failure on a global scale; however, it is their interconnected nature that makes their negative implications so pronounced as together they can have an augmented effect,” she said.

Axel Lehmann, chief risk officer, Zurich Insurance Group stated that as cyber risks increase, trust in the internet decreases.

“Cyber is increasing every year in terms of importance for companies; it is not just a technological problem, it affects everyone,” he said.

“A fragmentation of the Internet itself is the wrong way to solve this issue, as it would destroy the benefits the web provides to all of us. Rather than building walled gardens, it is time to act by setting up security standards and regaining trust.”

David Cole, group chief risk officer and member of the group executive committee, Swiss Re spoke of the unemployment issue in the US. “This generation is lost,” he said. “In the US, education costs are increasingly outweighing the return as the younger generation can’t find employment and therefore pay back debt.

“Until governments and business start to think about sustaining long term issues, this problem will continue.”

The panel also touched on the increased level of regulation, which Drzik believes is causing retrenchment in investment.

“The new capital that is now required to secure balance sheets is great, but it discourages long-term investment in the some areas. If the banks are being discouraged to invest, then other areas such as insurance and pension funds should be encouraged, but that’s not happening,” said Drzik.

Cole added: “There is a trend to bring assets back home and under control as there is no trust between national authorities, this coupled with a series of changes that collectively we don’t know the impact of is the reason for this.

“Capital moves quickly, but by keeping it close to home, this is not going to help close the wealth gap.”

Weather related disasters were also high on the agenda.

“Weather events are increasing in frequency and severity which is why they are now in the top five global concerns,” said Blanke.

“There is more urbanisation and the value of property is increasing, which is why these events are becoming more costly. The Government used to provide a small amount of disaster recovery, but now it is expected to produce much more, which is a big drain on funds,” said Drzik.