Risk & Insurance - April 2012

Most Dangerous Risks 2012

An interconnected global economy threatens to
overwhelm risk management.

If there is one word that could be said to be at the heart of this year’s crop of Risk & Insurance® Most Dangerous Emerging Risks, that word is interconnectivity.

From the multilayered vulnerabilities in our food supply chain, to the hectoring presence of electronic communication risk hazards, to the use of social media as a weapon, risk managers seem to be falling under the worrying dominance of a global interconnectivity, the implications of which they and the brokers and underwriters they work with as risk management partners are just beginning to understand.

And that is a characteristic of an emerging risk, in our definition represented by the big cat that lurks in the shadows of tropical foliage on our cover. We see a pair of feline eyes and the outline of a head, but determining whether that cat is a tiger might require more investigation.

According to one of our sources, an emerging risk is a risk that is not on the average insurance buyer’s radar, but probably should be. Lloyd’s defines an emerging risk as an issue that is perceived to be potentially significant but which may not be fully understood or allowed for in insurance terms and conditions, pricing, reserving or capital setting.

What underpins the story lines we have created are the very real threats that some underwriters see on the horizon. There may be no loss histories for these threats. They could be too elusive, or too massive, in some cases, to get a handle on, but they are threats worth noting and talking about nonetheless.

So taken are we with the effectiveness and immediacy of the scenario approach to reporting on, presenting and publishing risk management information, that we have launched a new website, RiskScenarios.com, which will give risk managers and other insurance professionals a chance to match their wits against a scenario, provide their approach to a situation, and then gauge their response against those of other experts who tackled the same issue.

A Risk Scenario might range from the losses that could accompany a catastrophic workers’ compensation claim, to the reputational and equity risk that could face a company with the occurrence of a substantial data leak due to hacking or some other cybercrime.

Publication of this year’s print issue is timed for the annual Risk and Insurance Management Society Inc.’s annual conference, which this year happens in our hometown of Philadelphia. The RiskScenarios.com web site is set to launch on April 10, the same day that this issue is published.

In our inaugural Emerging Risks issue, which debuted at the RIMS show in Vancouver last May, we alerted readers to an intensifying solar storm cycle, which has yet to reach its peak. In January and again in March, coronal mass ejections of the sun’s surface hurled charged particles toward Earth at the rate of 630 miles per second, but caused minimal damage. A storm that could cause widespread devastation to technology similar to the Carrington Event in 1859 hasn’t happened to date, but that doesn’t mean it won’t.

Japan’s earthquake and tsunami in March 2011 and the supply chain disruptions from that event were dissected and discussed throughout 2011 and into 2012. The flooding in 2011 and 2012 that caused so much supply chain disruption in Thailand inundated 65 out of that country’s 77 provinces.

Now executives with FM Global and other risk management companies are turning their attention to Taiwan, home to so much of the world’s semiconductor manufacturing capacity. What if? What if a typhoon hit Taiwan in such a way that it rocketed up that country’s West Coast and devastated Taiwan’s three major science centers, which house its

APRIL 2012

semiconductor manufacturing capabilities? The technology sector, automotive and telecommunications sectors are just three of a multitude of industry segments that would face a severe supply chain pinch point under such a scenario.

What if, and what would you do?

Therein is the essence of the Risk & Insurance® approach to reporting on emerging risks and risks that might be considered to be more broadly known. What if this were to happen and what would you do about it? Rather than provoke fear, we seek to stimulate conversations among our readers on how best to approach, plan for and mitigate these emerging risks.

BY DAN REYNOLDS, managing editor of Risk & Insurance®. Dan can be reached at dreynolds@lrp.com.

What would you do? Risk & Insurance® initiates a new approach in risk management publishing.

Over the past year, Risk & Insurance® developed and is launching in conjunction with this issue a new way of reporting on, presenting and publishing substantial risk management threats and vital mitigation techniques for its readers.

Dubbed Risk Scenarios, and now available online at RiskScenarios.com, this new initiative combines interactive technology with real world scenarios to create compelling learning opportunities.

Using information gleaned from dozens of interviews with industry thought leaders, our editors have begun constructing scenarios that are fictional only in the specific details of their story lines.

Our first online scenario outlines the reputational and other risks that lie in wait should a particularly skilled team of computer engineers succeed in building an impregnable fortress of stolen data.

In our initial online scenario, titled “The Witches of Maseeh Hall,” three MIT sophomores who have come under the influence of a left-leaning professor succeed in hacking the e-mail accounts of dozens of publicly traded companies. They then post the hacked information in a searchable format on their secure cloud site. Readers can then help themselves to email dialogues that prove to be reputational nightmares to the companies that lost the information.

Well, if that happened, what would you do? Perhaps just as importantly, what are you doing to make sure that that doesn’t happen to your company?

Online, as is the case with the scenario we just described, each Risk Scenario challenges participants to decide how they would handle an emerging threat. After responding to poll questions about how they would affect a solution, participants can then read how other industry experts reacted to a situation or would react to a situation.

Accompanying those responses in some cases will be white papers by other thought leaders on the topic.

Regardless of the profession, nothing can take the place of preparedness. We have designed our Risk Scenarios, in the print edition and online, as challenges, both to stimulate the reader and better equip them to perform their jobs.