Lloyd’s Report Says Global Businesses Fail to Identify, Manage Emerging Risks

October 5, 2005

Despite spending more time on risk management, board directors at global businesses are failing to identify and manage emerging risks effectively, according to a new research report published by Lloyd’s.

Lloyd’s, working with the Economist Intelligence Unit, conducted a comprehensive survey on how well organizations deal with new areas of complex risk. More than 100 business leaders from a range of countries and sectors were asked for their views on how well their organizations manage risk.

With new areas of risk such as cyber crime emerging and experts predicting that the impact of man-made and natural catastrophes will become more severe, the research found that:

* Over half of companies had at least one ‘near miss’;
* One in three companies suffered significant damage as a result of failure to manage risk;
* The amount of time boards are spending on risk management has risen four-fold in the past three years;
* Boards are now assessing a wider range of risks in the light of corporate scandals and regulatory intervention, but they are ignoring other headline risks such as terrorism and the weather; and
* Despite recent terrorist attacks, less than half of companies are reassessing their risk management strategies. For natural hazards it is less than a quarter.

Launching the research, Lloyd’s Director of Worldwide Markets Julian James said:

“Today’s business leaders know that the likelihood of a costly risk management failure is high. Yet while it is encouraging that boards are now spending more time and resources on risk management, this research clearly shows that businesses accept they should be doing more to recognize and prepare for the potentially crippling risks that they face.

“Board directors pinpoint the insurance industry as the first port of call for risk management advice and it is a key part of the work of the Lloyd’s Market. However, the first step is for businesses to recognize the complex global risks they now face and put risk management at the top of their agenda.”

David Foreman, Chief Underwriting Officer at Lloyd’s insurer Wellington said:

“This valuable new research shows that risk management in firms is still being driven almost grudgingly by a need to meet regulatory demands rather than realizing the full benefits it can bring.

“Whether the lack of preparedness to anticipate and deal with risk reflects misplaced confidence or ignorance is debatable. But until boards start to tackle these issues, risk management is likely to be seen by senior management as a constraint on their business, rather than the source of competitiveness that it should be.”

The findings also show that many of the problems that organizations face are structural as well as attitudinal. Although boards are paying more attention to risk management issues there is still great disparity in the way that organizations manage risk. Many are failing to embed a culture of risk management throughout the organization.

In only half of all companies surveyed was risk management centralized and two thirds of boards have not received training in either identifying emerging risk or implementing risk management across their organizations.

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