Risk Management Trends to Follow for the Second Half of 2023
If there’s anything we’ve learned in the last few years, it’s that organizations need to be prepared to address the evolving landscape of risks. In a world where change is constant, staying ahead of the curve is no longer a luxury but a necessity. One way risk professionals can stay ahead of the curve is by keeping up with industry trends and adapting their risk management practices as needed. As we’re approaching the second half of the year, here are some of the biggest trends that will shape the risk management landscape.
Increase cyber risks driving the need for more robust cybersecurity measures
In the last few years, cyber-attacks have become more prevalent and sophisticated. This trend is only going to continue in 2023. The acceleration of remote work in the last few years has left organizations more vulnerable to cyber threats as they are forced to think about data security and remote access.
With the increasing frequency and sophistication of cyber threats, organizations need to focus on enhancing their cybersecurity risk management and tackle these digital risks head-on. This involves proactive measures such as robust security protocols, secure remote access, employee security training programs, incident response planning, and cyber insurance.
Although cyber coverage is costly, organizations of all sizes need to prioritize getting the necessary cyber insurance to minimize the impact of attacks. According to the November 2021 data from Cybersecurity Ventures, the cyber insurance market is expected to reach $14.8 billion by 2025 and exceed $34 billion by 2031. There has been an increase in regulations that require companies to invest in cybersecurity insurance. This trend will accelerate, so companies should get ahead of the curve and implement coverage sooner than later.
All these efforts to strengthen cybersecurity measures will pay dividends in the future and make a significant difference in protecting organizations from external threats.
To learn more about the state of cyber risks and cybersecurity measures to implement, read our latest article on the topic:
Acceleration of AI
In the first half of 2023, there was a steep proliferation of AI tools. Along with this explosion, there was a larger dialogue on what implications this can have for people and their line of work. With the capabilities unveiled by ChatGPT, people began to have an even more heightened interest in the potential of AI.
The advancement of AI has done wonders for the risk world. There has been a growth in risk intelligence tools to help risk practitioners detect historical and emerging risks. Software solutions, like LineSlip, can assist risk managers in identifying risks across multiple lines of business and automate arduous, repetitive tasks. AI has brought on an era of efficiency that previously was unheard of in risk management.
However, even with the availability of AI and these new tools, adoption has still been relatively slow — possibly due to the risk-averse nature of the people in the industry. Many are choosing to do things the way they’ve always done things: manually. Even with the options available, many are still entering their data on a number of Excel spreadsheets. This is a time-consuming process that can often yield inaccurate results. Traditional risk management practices can no longer keep up with today’s complex business environment, where many risk teams are spread thin.
With the technological developments this year, it’s no longer a matter of whether or not risk professionals can rely on technology, but it is now imperative they should. Digital transformation in risk management transcends all industries. If risk practitioners refuse to evolve technologically, they will get left behind.
Greater focus on building supply chain resilience
The risk management department plays a crucial role in ensuring the stability and success of businesses, especially when it comes to supply chain. In today’s interconnected and rapidly changing world, supply chain disruptions have become more frequent and severe. In the past few years, the COVID-19 pandemic, geopolitical instability, and multiple natural catastrophes created numerous disruptions, exposing vulnerabilities in global supply chains. The ongoing disruptions to the global supply chain have had a tremendous ripple effect across many lines of business.
Due to the disruptions supply chain posed in the past few years, risk managers must focus on building supply chain resilience to mitigate potential risks and maintain business continuity in 2023. This involves identifying vulnerabilities, diversifying suppliers, and implementing proactive measures to enhance flexibility and responsiveness. By fostering collaboration with suppliers, implementing contingency plans, and leveraging technology solutions for improved visibility and traceability, risk managers can effectively navigate unforeseen challenges and ensure the resilience of their organization’s supply chain. In doing so, they not only safeguard the flow of goods and services but also safeguard the overall success and reputation of the business.
Here are some supply chain best practices for risk managers:
Ensuring adequate insurance coverage for company’s properties
The ongoing inflation has been driving up costs across the board. Companies with multiple properties have seen their replacement costs increase substantially due to higher construction costs and increased costs of materials. Insurance carriers that companies used to traditionally rely on are making it more difficult to get coverage and get paid on claims. As a result, many companies have inadequate coverage for their real estate assets, which puts them in danger of being underinsured and at the whims of insurance providers that charge co-insurance penalties for not having the right amount of coverage.
A trend that has been on the rise is that insurers are now asking companies to show data on how they determined the valuation of their assets. This trend is driving risk managers to find more accurate replacement cost data so they can avoid penalties, keep up with the changes in inflation, and have an appropriate coverage-to-exposure ratio. To address this issue, LineSlip is releasing our True Replacement Cost feature soon. The feature will streamline the coverage and replacement cost reconciliation process, helping property owners avoid penalties from claims insurance won’t cover and maintain an appropriate coverage-to-exposure ratio. The feature proactively monitors inflation trends so risk managers can adjust insurance programs accordingly, safeguarding against inadequate or excessive insurance coverage. With True Replacement Cost, risk managers will have up-to-date values of their properties on a location-by-location basis.
Integration of environmental, social, and governance (ESG) into risk management strategies
In today’s evolving business landscape, more companies recognize the importance of integrating ESG factors into their risk management strategies. ESG considerations encompass a wide range of issues, including climate change, resource depletion, labor practices, diversity and inclusion, social responsibility, ethical business practices, and corporate governance.
By incorporating ESG into their risk management frameworks, risk managers can gain a more comprehensive understanding of the potential risks and opportunities that these factors present. They can assess the impact of ESG risks on the organization’s reputation, regulatory compliance, operational efficiency, and long-term sustainability.
Moreover, by identifying and addressing ESG risks, risk managers can enhance their ability to attract and retain investors, meet evolving stakeholder expectations, and align with global sustainability goals. By adopting ESG as an integral part of their risk management strategies, organizations can not only manage risks more effectively but also drive positive social and environmental outcomes, creating long-term value for all stakeholders involved.
To learn more about ESG in risk management, listen to the first episode of our Unparalleled podcast, where our guest, Kristin Peed, touched upon the topic:
Creating operational resilience
The last few years have been marked by simultaneous disruptions. And to make matters worse, there is a connectivity of risks. One crisis can quickly ripple effect to create another crisis. Businesses need to be ready for all kinds of disruptions and emerging risks.
It’s no surprise that more organizations have been shifting to a holistic approach to risk management that focuses on building operational resilience. This involves identifying and mitigating risks that can impact critical business operations, including cyber threats, natural disasters, technology failures, and regulatory changes. The emphasis is on building flexible and adaptable systems and processes to withstand and recover quickly from disruptions.
Risk professionals should create incident response plans (ICR) and business continuity plans that can protect the company in the face of disruptions. These plans should include a team of risk stakeholders that have the expertise to make fast and intelligent risk-based decisions when needed and have the power to implement procedures. The risk management department’s effort in building operational resilience will make all the difference when it comes to preserving the longevity of the organization.
Traditional risk management models are being swapped for one that is more agile
As new risks are emerging at an unprecedented rate, many risk professionals are finding that traditional risk management models are not equipped to deal with these risks. Risk professionals are making the move to risk management models that are more agile, adaptable, and proactive since it allows them to make faster and better decisions in an ever-changing business landscape.
The agile model of risk management requires companies to be proactive in monitoring risks and adapting their strategies when necessary. Risk mitigation strategies should be put in place to prevent certain risks from occurring and reduce the impact of other risks when they do occur. Agile risk management does not come by chance. It involves lots of decision-making, proper planning, and effective communication to implement the necessary procedures and processes. It also involves iterative and continuous risk assessment, analysis, and response, allowing organizations to respond quickly to emerging risks and capitalize on opportunities.
The move to a more agile risk management model gives risk practitioners more peace of mind while giving them flexibility and more ability to bounce back easily. This approach to risk management lays the foundation for sustainable growth as risk professionals are more equipped to handle ever-evolving challenges.
Economic uncertainty, rising inflation, regulatory changes, and increase in weather-related events are all forces that are transforming the way risk management operates. Companies need to be more innovative to address these challenges. For many companies, the risk management department needs to step up to the plate and spearhead necessary changes to help protect their companies and to drive sustainable growth. This is why risk professionals can no longer stay complacent with the knowledge and practices they’ve accumulated. Risk management is an ever-evolving field, so they need to stay in the know to be able to adapt to new challenges and emerging trends.