Nature can often throw surprises as seen in the Los Angeles wildfires that were exacerbated by a triple whammy of extreme conditions featuring prolonged drought, an exceptionally dry winter and powerful winds.
Severe weather conditions were also evident in the Asia Pacific region in recent months, with Seoul witnessing its heaviest snowfall in more than a century last November. Storms and record rainfall have also triggered deadly floods in northeast Australia in recent weeks.
With 2024 being the first year to exceed 1.5°C warming above pre-industrial levels, erratic weather patterns and related disasters will continue to remain a feature of our operating landscape. The mounting financial impact of natural catastrophes will also be driven by an expansion in the value of assets at risk. According to WTW’s Natural Catastrophe Review in 2024, the insurance protection gap for natural catastrophes is estimated to stand at 60%, leaving a lot of financial exposure with organisations.
As risk experts, we see that the global risk environment has become more volatile, and just like extreme weather conditions, events once thought rare are becoming more likely to happen requiring a suitable risk management response.
Today’s economic and geopolitical landscape has become far more unpredictable, with the posturing of the new US administration prompting businesses in Asia and elsewhere to rethink their supply chain strategies. With global trade relationships at risk of being reshaped, economic concerns are also emerging with fears over inflation and rising interest rates.
The world faces a continuous supply of emerging risks, some completely new while others have evolved over time, all of which require us to find smarter ways to manage them. With the business landscape becoming more interconnected and risks evolving at a rapid pace, how can organisations set themselves up to become more resilient and less fragile to shocks?
To understand the perceptions and preparedness for emerging risks among businesses, WTW recently conducted a global survey assessing key emerging risks identified by over 330 key decision makers from 55 countries, including Asia.
Technology dominated the emerging risks agenda for companies both in Asia and globally, and not just in the short to medium term as it is also seen as the greatest driver of change expected in the next 10 years.
When discussing technology, artificial intelligence (AI) was top of mind for most organisations, with rapid advancements in AI leading organisations to ponder what it means for their businesses. The advancement of cyber threats from the use of AI and poorly developed or governed AI solutions were also major concerns.
Geopolitical risk also featured prominently, with impact on supply chains being of high priority among companies in Asia amid ongoing trade tensions between the US and China. With China being the largest trading partner for Asia, many raised concerns about how geopolitical risk could disrupt supply chains and the stability of business operations.
Meanwhile, environmental risk continues to weigh on the long-term planning agenda of businesses in the region. The fact it remains a top emerging risk and source of change for organisations highlights that despite climate change being a well-recognised risk, climate resilience is a journey that requires continued attention. As the climate changes, natural and financial tipping points further bring an increase in interconnected and compounding risks across multiple sectors.
Additionally, the transition of economies, industries and organisations to low carbon is already triggering significant changes in economic activity and asset values, at different speeds across the world.
Given how deeply connected the world is, no organisation is detached from this increasingly complex risk landscape, whether through international trade, ownership or end customers. Furthermore, technology risks are now hardwired into almost every organisation. It underpins the data flowing through our systems – the infrastructure wiring our economy and is also the enabler that allows for new market opportunities.
The Crowdstrike-related IT outage that occurred last July illustrates this, seeing how it managed to trigger days-long disruptions worldwide, such that doctors were unable to treat patients, flights were grounded, businesses could not complete sales and much more.
Emerging risks are complex and carry unseen costs if they go uncontemplated. What is fascinating is that it can be viewed both as a threat and an opportunity. Over half of the survey respondents (54%) see emerging risks as having detrimental effects while almost six in ten see it as a potential opportunity with positive outcomes for their organisations.
Our survey also shows that less than one in two organisations are confident their business model and strategy is resilient to emerging risks they are responding today. The most effective organisations recognise that action is needed which connects risks and ensures a coordinated approach across the organisation. The COVID 19 pandemic proved that companies that have the capacity to absorb disruption and thrive in altered circumstances are much more likely to turn crises into growth opportunities, thus outperforming their competitors
Inaction in the face of emerging risks is not an option, so whether you are altering your existing emerging risk approaches or simply starting from scratch, there has never been a better time to challenge your approach to emerging risks. Here are three action points for business leaders and risk managers embarking on this journey.
01
The importance of building an emerging risks process linked to your business model cannot be emphasised enough. Reviewing emerging risks is also about considering opportunities and your competitive advantage.
Changing markets, designing new products and prioritising strategic growth are all activities taking advantage of emerging risks and changing circumstances.
02
Business and risk leaders should look to build a shared framework to understand how emerging risks can impact strategic objectives across your organisation and turn potential threats into opportunities.
Adapting to a reality of fast-paced and interconnected changes requires a mindset shift; moving beyond the idea that the future is a set trajectory to instead planning and preparing for a range of possibilities.
Through proactive risk assessment and collaboration with other business functions, organisations can drive positive financial impact and enable different business areas to plan with increased confidence.
03
Finally, organisations need to promote a culture that is both risk-aware and proactive in addressing emerging risks, supported by robust communication channels ensuring emerging risks are reported and addressed promptly.
Just as no risk operates in isolation, leaders increasingly need to have a wider understanding of impacts beyond their function, and organisations need to consider innovative ways of harnessing insight from their employees. As organisations carefully consider their approach to emerging risks, they would be well-served to be open-minded and sensitive to early warning signs while constantly adapting in the face of global change.
Many of the 2024’s challenges will continue through this year. With risks becoming more interconnected, effective business leaders in Asia need to reassess their strategies and current approaches to people and risk management to ensure they can navigate today’s geopolitical, technological, environmental and economic challenges rather than being steered by them. Embracing an integrated approach to these multifaceted risks is crucial for businesses to drive performance and a competitive edge.
This article was first published by InsuranceAsia News on 3 March 2025.
