From climate change to digitalization, experts debate risks and rewards

Risk Management in FocusArticleNovember 12, 2018

Shifts in the climate and geopolitical landscape were among risk managers’ concerns at Zurich’s Global Risk Management Summit.

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If you think the summer of 2018 was hot, it may one day seem like a memory of cooler times if scientists’ predictions come true.

Zurich’s Group Chief Risk Officer Alison Martin pointed out during the company’s Global Risk Management Summit in Berlin that while 2018 saw Europe and other parts of the world sweltering in a heat wave, recent temperatures may be considered mild by the end of the century if forecasts are accurate. Rising temperatures need to be addressed quickly, she urged.

“There is an immediate need to fully understand the impact of climate change today and in the future,” Martin said. “Companies must define a climate change resilience adaptation strategy and act on it now.”

She was among the Zurich experts covering a range of topics during the two-day meeting that was attended by risk managers from around the world. Geopolitical issues, the ethics of digitalization, business ecosystems and platforms, as well as topics such as the future of insurance and risk management were also on the agenda.

Martin discussed the findings in Zurich’s report, “Managing the impacts of climate change: risk management responses.” The comprehensive report includes guidance risk managers can use to develop a three-step climate resilience adaptation strategy.

“Risk managers need to consider the effects that rising temperatures will have on buildings, water quality and availability, energy use and what appears to be a rising incidence of wildfires,” said Amar Rahman, Zurich Risk Engineering’s Global Practice Leader for Natural Hazards.

Such innovative measures as roof gardens to help cool buildings and use of flexible working approaches to allow employees to work remotely during hot days already are in place at some companies, he pointed out. “Sound risk management practices should be implemented to identify and plan for such dynamic risks,” Rahman said.

Emerging global risks

Geopolitical shifts have left the world in a place where governments no longer feel required to conform to ideals and institutions in the same way as in the past, speakers at the summit agreed. Precedence and history are not as important as they once were, they noted.

The result of such attitudes is the creation of new risks and uncertainties that arise from military tensions, trade wars and greater barriers to international business. For example, Eugenie Molyneux, Chief Risk Officer, Commercial Insurance at Zurich, said the potential for an “all-out trade war” involving the U.S., Europe and China is a threat risk managers need to address.

Not all the proposed tariffs that countries are threatening have been introduced, she pointed out, and companies need to create a plan they can implement if needed. In assessing the risk, some traditional risk management techniques such as addressing supply chain disruptions are useful, Molyneux said.

It is also advisable to “consider the risk over multiple time scales,” she said. “Do you think a trade war will last for a year, five years or 20 years?”

While a one-year trade war might be weathered with inventory stockpiles, one that lasts two decades calls for another approach, Molyneux said. In that case, a more likely solution would be to redesign the product so that it doesn’t need components that carry high tariffs. “Or find supply chain alternatives that are more permanent,” she advised.

Digital platforms carry risk, rewards

Setting up online platforms to offer products and services and help manage supply chains is not easy and carries some risk. But, for some companies, failing to develop a platform could be a serious oversight, according to Hans van Grieken, EMEA Technology and Research Insights Leader at Deloitte Consulting.

“Most companies do not have the digital technology operating model in place that enables them to quickly engage – and disengage – with partners and platforms within their ecosystems,” van Grieken said. “This is important because participating in platforms involves risks in terms of the digital technologies involved and the potential lock-in and cannibalization effects.”

Van Grieken and Mikolaj Piskorski, a professor at IMD Business School, agreed that many large companies are setting up platforms as a way to protect their positions from such giant digital operators as Amazon, Google and Kayak.

“Competing with these large platforms is difficult as they have more customers and more data about them,” said Piskorski.

Meanwhile, Sandra Matz, a professor at Columbia University, stressed that “big data is coming of age” and companies are using it to enhance customer experiences in a way that feels natural. “Customers desire engagement with brands through experiences that are seamless,” she said.

This digitalization, however, creates its own set of risks, namely around reputation, trust and security, Matz said. And there are ethical concerns around tracking online behavior in order to market products and services.

“How much is too much?” Matz asked. “When does tracking become stalking?”

Video interviews of Zurich experts at the summit are available at Risk Management in Focus.