Geopolitical risk is top global concern

Geopolitical risks are now more of a concern for global risk management than economic risk, according to findings from the World Economic Forum’s Global Risks report.

Surveying 900 participants and looking at 28 different types of risk within five categories: economic, environmental, societal, geopolitical and technological, interstate conflict is now the most likely risk to occur, while water crises is the top risk in terms of impact.

Extreme weather events and failure of national governance came in second and third in the most likely category, while spread of infectious disease and weapons of mass destruction were the second and third to cause widespread impact.

“Geopolitical risk is now very high on the agenda and number one for likelihood and number four for impact. However, this does not mean that we should assume that economic risks have gone down the list. The point of this report is to highlight that all risks are connected,” said Espen Barth Eide, managing director and member of the managing board, World Economic Forum.

He also spoke of the risk involved in globally addressed risks becoming regionally addressed.

“Global governance could weaken, which could result in the world being less able to deal with global problems such as health as a united front,” he said.

Axel Lehmann, chief risk officer at Zurich Insurance, spoke of the challenges posed by rapid urbanisation, saying that the correct balance must be achieved for success.

“Urbanisation too rapidly can touch on every risk,” he said. “As an example of the expected growth in various regions, by 2015, it is expected that 50 percent of the population in Africa will live in cities. In Asia, 70 percent are expected to live in cities by the same period. Some 80 percent of the world’s gross written premium (GWP) is produced in cities. As these populations grow, health, climate and societal instability are just some of the risks that will be affected."

Lehmann described infrastructure risk as a crossroad case, saying that it has significant benefits when good planning and regulation is put in place.

Speaking of the way in which risks are changing, he said: “In 2006/07 the top concerns were all about economic and systemic risk, but now it’s much more about societal and environmental risks."

John Drzik, president, global risk and specialties at Marsh, spoke of the threat of cyber risk, saying that until now, this risk hasn’t been front page news.

“The cost of cyber tax is now around $400 billion a year; that’s the same gross dependent product (GDP) as Thailand,” he said.

He also spoke of three potential new risks which could be as impactful as cyber in time.

“There will be an explosion of products within the synthetic biology space, however risks could come from error or terror. Whether it’s an accidental leakage or a bio hacker, this is a rapidly growing area,” he said.

“Nano technology and Artificial Intelligence (AI) also pose significant threats. The former can create risks that we don’t even fully understand yet; we already have 180 of these products on the shelf. As forAI, this could lead to large scale unemployment with the potential for 47 percent of US jobs going to AI. We need to take risks, but make sure that we govern them.”

All of the speakers were united on one front, which was the importance of acknowledging the link between all risks.

“It is important to understand the link between risks. For example, we could see interstate conflict over gaining fresh water,” said Drzik.

Questions from the audience touched on macro risks, energy, private and public partnerships and risk management in governments.

Margareta Drzeniek, director, lead economist and head of global competitiveness and risks, World Economic Forum, said that many, if not all, of the risks in the report need to be tackled with a joint effort from both the public and private sectors. However, she stressed that there were still challenges associated with that.

“There is a lack of trust between the public and private sector which can make these partnerships very complex,” she said. "A lot of historical passage needs to be cleaned up. There are also often other concerns such as legal issues and regions where the governance isn’t good enough.”

Drizk added that the topic of risk management within governments was being encouraged and that the industry would like to see more of it.