Sponsor segment - Global risks

Thursday 7 April 2022

In 2021 Marsh collaborated with the World Economic Forum in the production of the Global Risks Report 2022, launched in January 2022. It has since been remarkably accurate in its foresight on short-term global risks.

The Report contains an executive opinion survey which consolidates the thoughts of more than 12,000 country level leaders over the short (zero to two years), medium (two to five years) and longer (ten-year) term with climate action failure, extreme weather, and environmental issues dominating concerns throughout.

Some risks are less relevant at local level, and the impact of others may not be immediately obvious. The outcome also demonstrates an increasing divergence of traditional insurance solutions and real-world exposures. Events of the last three years have shown how incidents in Wuhan, China can quickly spread, with a catastrophic effect on UK public services.

Against this background below are some key themes and the potential impact on the public sector.

Scars of COVID-19

‘Social cohesion erosion’, ‘livelihood crises’, and ‘mental health deterioration’ are three of the five risks that have deteriorated the most. These three risks (and the pandemic) are seen as being among the most imminent threats.

Public sector impacts:

  • Effective policy-making challenges compounded by societal scarring.
  • Forced to adapt to new ways of working.
  • Employee wellbeing concerns.
  • Escalating health and social care demands.
  • Increased resident inequality.

Looming debt crises

‘Debt crises’ were identified as an imminent threat for the next two years, but survey respondents believe they will reach their most critical point in three to five years. Government stimulus was considered vital to protect incomes, preserve jobs, and keep businesses afloat.

Public sector impacts:

  • Public budgets stretched by high debt burden.
  • Direct conflict with post-pandemic demands, including green transitions.
  • Alternative income streams. 
  • Town centre regeneration and investment risks.

The planet cannot wait

‘Extreme weather’ and ‘climate action failure’ are among the top five short-term risks, but the five most menacing long-term threats are all environmental. ‘Climate action failure’, ‘extreme weather’, and ‘biodiversity loss’ also rank as the three most potentially severe risks for the next decade.

While concerns about environmental degradation predate the pandemic, increasing concern with climate action failure reveals respondents’ lack of faith in the world’s ability to contain climate change, compounded by deepening societal fractures and economic risks.

Public sector impacts:

  • Limited ability to manage exposures.
  • Increased reliance on others, for example utility networks.
  • Price and availability of insurance.
  • Green agenda diluting front line service provision.

Connectivity blind spots

‘Digital inequality’ is seen as an imminent threat to the world as 3 billion people remain offline. Positively,, many countries and industries were able to access and adapt to new forms of human interaction and remote work quickly. This digital leap, however, came with increased vulnerability.

Respondents believe ‘cybersecurity failure’ will continue to test the world’s digital systems over the next two years and, to a lesser extent, in three to five years. Interestingly, no technological risk appears among the most potentially severe for the next decade, suggesting lower relevance to respondents - or a blind spot in perceptions given the potential damage of cyber risks.

Public sector impacts:

  • Increased gap between ‘haves’ and ‘have nots’.
  • Ability to stay one step ahead of cyber criminals.
  • Exposures linked to new ways of working and increased automation.
  • Cost and availability of insurance.

Growing rivalries

Respondents believe ‘geo-economic confrontations’ will emerge as a critical threat to the world in the medium to long-term and as one of the most potentially severe risks over the next decade. While pressing domestic challenges require immediate attention, the pandemic and its economic consequences have proven that global risks do not respect political frontiers.

Public sector impacts:

  • Co-ordinated global response needed to combat threats of economic fragmentation and planetary degradation.
  • Increasingly transient population.
  • Supply chain issues – cost and availability. 
  • Increased ‘competition’ across public services.  

Although many of the contributing factors are outside the immediate control of the UK public sector, organisations can still take action to mitigate expected consequences. A review of current risk registers is recommended, using the heightened awareness to stress test existing control and resilience measures against the emerging threats.

Mel Lydall is Client Executive – Public Sector Practice at Marsh. marsh.com/uk

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