Crisis shakes up strategic risk assumptions

Executives were revisiting the validity of strategic assumptions at the end of last year – a process that has accelerated because of the global pandemic, according to Gartner’s recent Emerging risks monitor report.

“Executives had been concerned with the validity of their strategic assumptions well before the current crisis situation,” said Matt Shinkman, vice president at the analyst’s Gartner Risk and Audit Practice. “The economic and operational fallout as a result of the global COVID-19 pandemic have forced many executives, particularly in the hardest hit industries, to start from scratch, even with a great deal of uncertainty still ahead.”

The US presidential election and macroeconomic stagnation have pushed extreme weather events and US-China trade talks out of the top five emerging risk table.

Common concerns

The report said that ERM teams would need to work hard to deal with many emerging risks that had accelerated during the crisis. Adjacent risks could intensify each other in unpredictable ways, it said. In conversation with risk managers between March 27, 2020 and April 3, 2020 the analyst found that the three most commonly cited areas of concern for risk professionals were:

Business continuity: Heads of ERM reported that they felt unprepared for long-term, ubiquitous remote work, and they were rapidly moving to update policies to manage risks from cybersecurity, privacy and decreased employee productivity, among others. ERM leaders also said they were reassessing supply chain risks in real time and driving efforts to review contingency plans for dramatic disruptions.

Impact on the risk universe: ERM leaders were grappling with how to classify COVID-19 within the risk spectrum and its impact on other pre-existing risks.

Demonstrating value: Many risk leaders said they were reconsidering how to better drive action on risks such as pandemics, which were typically rated as a “low probability, high-velocity,” risks. Some ERM teams were also taking an active role to ensure cost optimization efforts currently underway did not expose their organisations to excessive risks, nor drive excessive risk aversion.

The insurance industry has also had its assumptions upended by the crisis, according to a report by Willis Re. While most insurers had been expecting relatively stable economic conditions throughout 2020, they now faced GDP collapse, asset volatility and emerging insurance losses – potentially running into the medium term.

More risky

“Many insurers may be holding more risk relative to their balance sheets than they had anticipated, which suggests three options: ride it out, de-risk, or hedge,” the report said. “Whatever decision leaders adopt, there is work to be undertaken to determine the landscape first and then quantify all of the internalities and externalities that will support a decision in one direction or another.”

The IRM’s own research, published here, showed that over 90% of risk managers were still working within their functions during the crisis, showing that they were considered to be an integral part of business recovery teams.

  • About Enterprise Risk Magazine

    Enterprise Risk Magazine is the leading quarterly title for risk managers and enterprise risk, with a print circulation of over 5,500.

    Enterprise Risk is published on behalf of the Institute of Risk Management (IRM). The majority of IRM members receive their copy of Enterprise Risk at their home address, meaning the title... Read more
  • Categories

  • Tags