Risk managers must challenge some of the models and assumptions they rely upon to help mitigate the raft of current crises, and need to understand that firefighting will no longer suffice, delegates heard at Airmic\u2019s 2022 ERM Forum.\r\n\r\nGiving her keynote presentation at the event this week, Lloyd\u2019s sustainability director Rebekah Clement said the current global uncertainty is causing risk managers to rethink how they do things.\r\n\r\n\u201cWhen we face several crises at once, as we do now, a firefighting approach no longer suffices,\u201d said Clement. \u201cRisk managers need to horizon-scan constantly.\u201d\r\n\r\nShe added that time-tested models to assess and mitigate risks have been \u201cthrown into doubt\u201d and this uncertainty is challenging risk managers to innovate and think differently.\r\n\r\nAll this comes as risk managers move from the back seat into the driver\u2019s seat, with risk management topping the agenda at many business plan meetings, continued Clement.\r\n\r\n\u201cWe live in challenging times\u2026 but challenging times bring great opportunity,\u201d she stressed.\r\n\r\nAirmic members gathered for the event in London are facing a wide range of huge risks and were asked to rate the biggest threats to their organisation at this difficult time.\r\n\r\nTop came economic challenges on 40%, followed by cyber on 29%, climate change on 18%, and geopolitics, including the war in Ukraine, on 11%. Others risks got 2% of the vote.\r\n\r\nClement said global economic volatility has been driven by the pandemic, inflation and geopolitics. She said some of the models to help manage this risk have been found wanting, which shows the importance of looking beyond model outputs to really challenge an organisation\u2019s resilience.\r\n\r\n\u201cStress testing and scenario planning for increases in interests rates, market volatility and other risks is absolutely essential. Failing to prepare will also be an oversight,\u201d said Clement.\r\n\r\nFellow speaker Richard James, risk manager at Nuclear Transport Solutions, said financial health risk is the biggest supply chain issue facing many companies today. And he said there are steps risk managers at large firms can take to mitigate this risk.\r\n\r\n\u201cI think decision making around how we can support suppliers is key. For example, through financial terms and payments terms, can we contribute to keep them going? The other aspect is stock management, particularly for those single-source suppliers, can we invest now to restock levels to keep them ticking over?\u201d he asked fellow risk managers.\r\n\r\nMoving onto a second key risk, Clement said climate change is the most difficult and multifaceted threat to manage. Things are made more complicated by the fact that developing markets will be hit hardest by climate change but are the least prepared, she added.\r\n\r\nAnd climate risk is \u201ccompletely inseparable\u201d from geopolitics, proving the interconnectedness of risk, Clement continued.\r\n\r\nThis has been highlighted by the huge rise in energy costs across the EU following Russia\u2019s invasion of Ukraine, and the impact this will have on transition plans as countries look to shore up energy supply.\r\n\r\nClement said the transition to net zero is the \u201cbiggest capital reallocation in history\u201d and the insurance industry has a real opportunity to help the world understand the risks involved and support new industries.\r\n\r\nShe added that Lloyd\u2019s wants to work with customers to help them through the transition but stressed it wants to see transition plans in place among clients and proof that they are being carried out.\r\n\r\nClement told Airmic members that cyber risk and digital dependency are only set to rise further, with Lloyd\u2019s predicting that cyber insurance premiums are set to treble between now and 2030.\r\n\r\nShe said 85% of cyber breaches can be stopped by simple IT measures, and explained that 90% of breaches are down to human error. So risk managers, who need to be at the forefront of cyber resilience, must engage with both IT and HR on this issue, said Lloyd\u2019s\u2019 sustainability director. \u201dCollaboration is key,\u201d she stressed.\r\n\r\nClement went on to make clear that geopolitics is a growing issue for risk managers because of mounting global connections through complicated supply chains and the volatility of events. To make her point, she explained that the average UK manufacturer has 250 tier-one suppliers and more than 80,000 across its value chain.\r\n\r\nLloyd\u2019s recently produced its Ukraine: A conflict that changed the world report, which concludes that the war with Russia is creating a new world order, social unrest and economic volatility, among other risks.\r\n\r\nAnd Clement laid out some the report\u2019s key recommendations for risk managers.\r\n\r\n\u201cThere are no simple answers but we recommend companies boost investment in cyber resilience. Also, reshoring supply chains can prevent bottlenecks and minimise exposures. Focus on finding, hiring and retaining talent in areas such as transport and logistics to address demand on these service as a result of the conflict. And conduct scenario planning to prepare for all eventualities. Challenge the assumptions some of these models are built on,\u201d she said.\r\n\r\n\u201cUkraine is not the only geopolitical risk on our radars but it does highlight the growing role of geopolitics in risk management, the volatility inherent in our world today and how interconnected the risk environment is,\u201d she added.