One of the most visible risks facing corporations today is cybersecurity, but there are many others — and some that are just starting to emerge. To find out more about what is keeping the C-Suite up at night and how businesses can better prepare for risk, I checked in with Peter Zaffino, President and CEO of Marsh and chairman of the Risk & Insurance Services segment of Marsh & McLennan Companies. He leads the firm’s teams that provide risk advice and capital solutions to companies in more than 130 countries.
Robert Reiss: Risk seems to be in the news more than ever before, and it appears to be increasing globally. What are some of the top risks that businesses are concerned about today?
Peter Zaffino: The business world is in a constant state of flux, driven by economic, environmental, technological, geopolitical and societal forces. Businesses today are concerned with how these dynamics affect the security of their employees, their property, their products and their technology systems. Although risks vary in scope, form, and size a few common categories emerge across all businesses: (1) cyber risk, driven by increased global reliance on technology against a background where cyber attacks are on the rise; (2) environmental / natural catastrophe risks, with the advent of unprecedented numbers of extreme weather events, changes in global weather patterns and the environmental impact of global energy production and use; and (3) political risks, given the consistent rise in geopolitical tensions and political violence. Businesses that proactively face these risks have the best chance of mitigating their impact.
Reiss: In the past year, we have seen cyber threats evolve from point-of-sale breaches against customer accounts to attacks on government websites and even an attempt to bring down a corporate network. What can companies do to manage these risks?
Zaffino: Companies need to plan for the potential impact of cyber risks from a resiliency, liability and reputational perspective. Marsh supports our clients’ cyber risk needs with innovative solutions and data analytics to help assess the potential for cyber incidents, the scope of the potential risk and how to mitigate the impact if cyber incidents occur. Based on surveys, we believe that the majority of companies are not properly prepared for cyber incidents, and we strongly recommend implementing a comprehensive cyber risk program. Marsh uses a five-part approach to combat cyber threats that focuses on assessment, prevention, preparation, response and remediation.
Reiss: Foreign investment will always be a key strategy for growth given the unpredictable nature of geopolitical tensions, what advice do you have for companies around global political risks?
Zaffino: Companies understand that a volatile and largely unpredictable geopolitical landscape is the “new normal.” Organizations that have operations across several countries need to have a comprehensive business resiliency plan in place. The plan should consider business continuity, crisis management and people risks. We recommend that businesses take a multi-country approach to political risk programs because insurers often provide improved terms and pricing on diversified programs. Political risk, trade credit, and structured risk insurance are some of the coverages available to help protect their assets, liabilities and balance sheets.
Reiss: Risks that can derail growth plans and potentially require costly fixes have always been a part of business. How do you advise the C-suite to think about these challenges?
Zaffino: Risk and uncertainty are constants for any organization, and the dynamics impacting today’s risk environment are challenging companies worldwide. From the perspective of the C-suite, the question really becomes, “How do we generate growth in the face of this uncertainty?” We advise businesses to analyze risks in any strategic planning process and to allocate capital using a risk-based approach. Marsh brings rigor to the process of identifying and mitigating risks by relying on industry leading data analytics to help companies reduce uncertainty.
Reiss: With origins dating back to 1871, Marsh has a long history of helping businesses with insurance and risk management. What are some lessons that businesses today can take from your firm’s experience?
Zaffino: The most important lesson is, simply put, to be prepared. Our firm has always been deeply rooted in understanding, analyzing, quantifying and managing risk, while helping clients derive the most value from their insurance programs. Our co-founder Henry Marsh told the CEO of U.S. Steel, “Your problem is risk, not insurance.” That was in 1901, when Marsh guided U.S. Steel to manage its expected losses in a more pragmatic and profitable manner. Today, this is common practice, and it is expected from brokers. The main difference today is that we have more comprehensive solutions, better data and more sophisticated modeling.
Reiss: Looking ahead, what kinds of risks do you see on the horizon?
Zaffino: With today’s innovations and emerging technologies, such as self-driving cars, 3-D printers, and unmanned aerial vehicles, it’s impossible to say for certain what is around the corner. Businesses and the economy are evolving rapidly. However, you can be certain that each development will be accompanied by risks, and some of those risks will be new. In addition, the world is in a process of continuous change. If you consider the impact of globalization, urbanization, the emerging middle class in developing economies and the demand for water and energy, more uncertainty is on the horizon.
Also on Forbes:
Top 10 Risks Businesses Fear Most
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