2023 was a difficult year for all industries. Risk became more complex as organizations continued to navigate cyber security, labor shortage and employee turnover, supply chain issues, and shifting risk profiles.
For 2024, risk management only continues to become more intricate and confusing as global and technological advances further develop. Risks are becoming more interrelated and can have a greater impact on your organization than ever before. For example, the consequences can no longer just be thought of as financial and data leakages, but also the potential damage to your organization's reputation and the associated economic impact. Geopolitical conflicts are expected to intensify in the upcoming years which has the potential to greatly impact the supply chain, commodities pricing, political stability, and economic stability on a global scale. Businesses must be educated and prepared for the impact that this will have on their operations (Verdantix).
Organizations must stay vigilant to trending risk topics and their expected impact on their operations.
This article compiles top risk trends from a combination of sources to help risk professionals prepare for upcoming changes in the industry.
Trends discussed in this blog are:
- Cyber Security
- Artificial Intelligence (AI)
- Environmental, Social, and Corporate Governance (ESG)
- Market Capacity
- Shifting Views towards Managing Risk
If you remember our Risk Management Trends to Follow in 2023 blog, cyber security was one of the largest topics in the risk management sphere. The same is true today. With the rapid evolution of cyber risks such as AI powered attacks, sophisticated phishing attacks, and third-party cyber vulnerabilities, cyber security will only continue to become more complex and important to organizations.
By the end of 2023, the cost of cyber attacks on the global economy is predicted to be more than $10.5 trillion (Forbes). The threat of cyber attacks only continues to grow in 2024. Here are some trends expected in 2024 to combat this threat (Forbes) (MetricStream):
- Increase in cyber security regulations at both an organizational and governmental level, with attention on AI-focused regulations and frameworks.
- Increased cyber security investments. It is expected global spending on security and risk management will reach $215 billion in 2024 (Gartner).
- Presence of cyber security professionals in the board room, enabling organizations to move beyond reactive to cyber threats.
- Investment in training, development, and upskilling of cyber security professionals.
Artificial Intelligence (AI)
It is hard to talk about cyber security without mentioning possibly the largest threat concerning cyber security - Artificial Intelligence (AI).
Artificial Intelligence can negatively and positively impact the current process, the applications for generated images, text, code, reports are endless but must be used with caution. Besides seemingly obvious risks such as cybersecurity threats, data leaks, and plagiarism concerns, there are other risks that can prove threatening to your organization like AI bias and operational issues based on accuracy of information received (MNP).
Because of AI’s relative newness to the corporate world, there is a lack of data on the effectiveness and accuracy of the tool. While it can be a useful tool, be sure to be diligent about its usage and establish clear usage guidelines and risk management protocols within your organization.
Environmental, Social, and Corporate Governance (ESG)
Businesses should not only be adhering to environmental, social, and corporate governance (ESG) policies but also making sure they are prepared for the anticipated increase of regulation and legislation in the coming years.
In general, ESG trends in 2024 will have a focus on transparency and accountability from organizations. Mandatory disclosures and reporting are expected to become more common for organizations, this is already seen through the European Corporate Sustainability Reporting Directive, the United States Security and Exchange Commission's Climate Disclosure Rule, and California’s two climate disclosure Bills (FiscalNote). While many of these regulations are geared towards larger businesses, smaller companies should expect these rising standards of ESG reporting to find their way into their operations. Smaller organizations must prepare and be able to meet these reporting standards or risk losing access to their necessary supply chains (Canadian Underwriter).
With the uncertainty surrounding the insurance market, insurers have been managing their portfolios by strategically selecting risks and deploying capacity limits. This has led to rate increases, valuation scrutiny, capacity contractions, and individualized underwriting where areas and organizations susceptible to high-risk exposures face the most significant hurdles (InsuranceBusiness).
Policyholders need to take proactive measures and focus on the “Best in Class” mindset to combat this tightening capacity and make them favorable to insurers. Accurate, quality and robust risk information is crucial for policyholders moving forwards as the underwriting discipline continues in this tightened policy direction and risk profiles will play a huge role in underwriting decisions (AON).
Insurers have been and will continue to tighten their underwriting policies while reducing capacity. Many insurers have been adopting organizational level requirements that limit an organization's access to coverage when they are not met. For example, when it comes to cyber liability insurance, many insurers are opting to reject coverage for those who are not taking adequate precautions such as mandatory multi-factor authentication (MFA) across the company’s IT infrastructure and strict documentation of cybersecurity protocols. A proactive approach by policyholders will help simplify the organization's insurance process. Tracking and reporting on risk data, as well as researching and adhering to any relevant insurer requirements will help your organizations insurance prospects (Westland Insurance).
Shifting Views towards Managing Risk
For a long time risk management has been thought of as completing necessary compliance-based activities to avoid undesired outcomes or situations within the organization. This view of risk is changing, now more than ever risk leaders are keen to optimize their risk operations and use them to drive performance and add value in their organizations.
Forces driving this trend are (Deloitte):
- Workplace culture with a focus on innovation and experimentation
- Analytics capabilities that show a correlation between risk and performance
- New technologies that improve risk sensing, monitoring, and tracking
- New disruptive business models which drive the need for risk-taking
- Decentralization in organizations is empowering and rewarding employees to take risks
There are threats associated with this new approach to risk such as exposure to more risks than desired, reputation damage and/or regulatory actions associated with risk taking, and not properly correlating performance and risk.
These threats can be mitigated in your organization by (Deloitte):
- Recognize and reward intelligent risk-taking in the workplace
- Foster a risk-intelligent workplace culture and empower employees to take informed risks
- Utilizing tools with risk dashboards, visualizations, and scenario analysis to track and manage risk related data
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Similar to last year, the 2024 risk landscape continues to further evolve, introducing new opportunities and threats. Awareness of trends and their anticipated impact on your organization is crucial to protect your organization.
Cyber security, artificial intelligence, ESG, market capacity, and shifting views towards risk management are all expected to be top trends in 2024, the complexity of these issues has and will continue to grow as they become more interrelated and integral to an organization’s operations.
To learn how our solution can help you manage risks in 2024 book an intro call here.