Understanding the Top Risks Facing Risk Managers in 2024
In the world of risk management, the landscape is continually evolving. Recent findings from the 18th Annual Emerging Risk Survey, conducted by the Casualty Actuarial Society and the Society of Actuaries, reveal that risk managers are most concerned about climate risks, disruptive technology, and geopolitical instability. This survey serves as a critical tool for understanding the current and emerging risks that professionals face in their respective industries.
The Dominance of Climate Change
Climate change has consistently ranked as a top concern for risk managers since 2021. The latest survey, conducted in November 2024, confirms that climate change shares the top position with geopolitical instability. The findings highlight the ongoing challenges posed by severe weather events, including storms, heatwaves, and droughts, which are exacerbated by the lingering effects of the COVID-19 pandemic.
The report emphasizes the dual nature of these risks: “The context of 2024 is characterized by continued trends of severe storms and hail, heat waves and drought, a weakened but ongoing respiratory infection pandemic, and geopolitical concerns.” Furthermore, the rapid advancements in artificial intelligence (AI) are viewed as a double-edged sword, with the potential to revolutionize business practices while also posing significant risks if not managed properly.
Emerging Risks Identified by Risk Managers
In the survey, risk managers were asked to identify their top concerns from a list of 23 risks. The results showcased the following top five risks:
- Climate Change
- Geopolitical Instability
- Disruptive Technology
- Cybersecurity Threats
- Demographic Shifts
These rankings indicate a growing recognition of the interconnectedness of these risks, particularly how climate change can influence geopolitical tensions and technological advancements.
Financial Implications of Climate Risks
A recent study published in the journal Nature titled "Mapping Global Financial Risks Under Climate Change" sheds light on the financial implications of climate risks. The research examines how extreme weather events, such as floods, storms, and wildfires, impact global market securities. It underscores the importance of asset-level climate risk assessments for financial regulators, emphasizing that companies’ financial vulnerabilities can be amplified by climate change.
The authors of the study note, “We highlight the importance of cross-border climate financial risks, notably the transfer of impacts from production facilities in emerging economies to firms in developed economies.” This insight is crucial for understanding how climate risks can have far-reaching effects across global supply chains.
Government Initiatives for Flood Risk Management
In response to increasing climate risks, the UK government has announced a significant investment of $3.31 billion (£2.65 billion) to enhance flood defenses. This funding will support the upgrade and repair of flood infrastructure, with projects set to begin in March 2026. The initiative aims to protect homes from climate-induced storms and mitigate the economic losses associated with extreme weather, which currently costs the UK billions annually.
According to the Environment Agency, approximately 6.3 million properties in England are at risk of flooding, highlighting the urgent need for improved flood management strategies. Despite the substantial investment, critics argue that this funding is merely “the tip of the iceberg,” as it addresses only a fraction of the at-risk properties.
The Impact on Real Estate Markets
The real estate markets in the US and Canada are increasingly feeling the pressure from climate risks. Reports indicate a need for a radical rethinking of traditional risk management strategies in light of these challenges. A recent analysis found that property values in areas affected by wildfires dropped by 2.2% following significant events.
Experts like Eddie Seiler from the Mortgage Bankers Association emphasize the importance of considering long-term climate risks when underwriting loans. He states, “If you are underwriting a 30-year loan on a property at the Outer Banks of North Carolina, which will likely be washed into the ocean in 10 years, it needs to be taken into account very explicitly.”
The Broader Implications of Climate Change
The implications of climate change extend beyond immediate financial concerns. Homeowners in vulnerable areas are increasingly struggling to meet mortgage obligations due to rising insurance costs and the impacts of extreme weather. This situation has led to instances of homelessness and forced migration, as families are displaced from their homes due to unmanageable risks.
Ultimately, the findings from the emerging risk survey and recent studies underscore the urgent need for proactive risk management strategies that address the multifaceted challenges posed by climate change, technological advancements, and geopolitical instability. By understanding these risks, stakeholders can better prepare for the future and mitigate potential losses.
For more insights on risk management and climate change, explore resources from the Society of Actuaries and the World Meteorological Organization.