Unrest Across the Globe
2009's survey put the risk of 'abrupt regime change' at 40 out of 41, 'riots and civil commotion' at 38 and 'terrorism' at 31.
The Arab Spring of 2011, which ousted regimes in Tunisia, Egypt and Libya and created growing internal opposition to regimes in Syria, Yemen, Bahrain and other Middle Eastern states is changing the political landscape of the region and helped drive oil prices upwards temporarily.
Yet the Index shows the perception of the risk of abrupt regime change has, if anything, dropped slightly down the list.
The severe and growing sovereign debt crises of many European states will take years to fully play out – continued austerity measures, which have already led to unrest in some countries, seem likely. Despite this, riots and civil commotion only just escape the bottom ten of the Index, while strikes and industrial action come in at number 30 and sovereign debt at 25.
Facing up to Cyber Threat
Cyber risk affects every business in every country. Yet its ranking in the overall Index at only 12 (malicious attacks) and 19 (non-malicious) appear relatively low given the frequency and potential impact of the risk.
The roll call of victims, including governments from Brazil to India and businesses from Honda to Blackberry, grew throughout 2011.
The business costs are mounting and, given the roll call of recent victims, even large businesses need to ask if they really understand the nature of the risk to which they are exposed. Are they, in fact, spending money on the right things?
In a world where comparison sites now exist to help criminals select data theft software, cyber security threats have become ubiquitous.
The quicker evolution of technical solutions are needed, together with improved reporting of breaches to help quantify the risk more accurately. In the interim, businesses should consider making the need to protect themselves and their customers a much greater priority.
A balancing act for businesses
The last two years have provided ample evidence of the impact of environmental and related health risks.
The examples of the Deepwater Horizon blowout in 2010 and the explosion at the Fukushima nuclear plant in 2011 could hardly be starker and yet businesses barely registered a change in the priority ranking of pollution and environmental liability.
That their preparedness scores were greater than their priority ranking may indicate a level of complacency around environmental risk.
Aside from clean-up costs and compensation for affected communities, one of the emerging risks for Europe and other countries where environmental damage is involved is the potential for US-style class actions; a growing risk of 'forum shopping' where litigants choose the jurisdiction in which they launch their claim.
New geographical frontiers of corporate liability are also opening up with the development of new, potentially riskier, means of energy production such as shale gas extraction and deep water drilling.
See also:
Drilling in Extreme Environments (Lloyd's Report 2011)
Litigation and Business: Transatlantic Trends (Lloyd's Report 2008)
The 'selective invisibility' of natural hazards
In the two years since Lloyd’s last undertook its risk survey, and despite all objective evidence to the contrary, natural hazards still remain at the bottom of the Index.
Even before the 2011 hurricane season ended, the amount paid out by insurers for the first six months of 2011 from natural catastrophes exceeded the total for the whole of 2010.
When it comes to natural hazard, what happens in Japan doesn’t stay in Japan. The interconnectedness of global trade means flooding, drought, windstorms and earthquakes have an immediate effect on supply chains as well as longer tail impacts.
As the impacts of climate change accumulate, business leaders may be failing to grasp the very real threats that natural catastrophes pose to business continuity.
In the ongoing debate over whether climate change is man made or cyclical, businesses, planners and governments may be in danger of losing sight of the urgent need to prioritise mitigating against the effects of natural hazard.
