The World Economic Forum Global Risks 2015 report, released at a press conference in London yesterday, singled out potential “interstate conflict with regional consequences” as the number one global risk in terms of likelihood, and the fourth most serious risk in terms of impact. Water crises were ranked highest in terms of impact.

The report is split into two sections, labeled “Risks” and “Trends”, which it defines as follows: – A global risk is ”an uncertain event or condition that, if it occurs, can cause significant negative impact for several countries or industries within the next 10 years.” The report lists 28 of these risks.

– A trend is defined as “a long-term pattern that is currently taking place and that could amplify global risks and/or alter the relationship between them.” There are 13 trends discussed in the report.

The annual report – this is the 10th edition – features an assessment by experts on the top global risks in terms of likelihood and potential impact over the coming 10 years. Following the heightened risk of renewed interstate conflict in terms of likelihood are: “extreme weather events (2), failure of national governance systems (3), state collapse or crisis (4) and high structural unemployment or underemployment (5).”

After potential water crises the global risks in terms of impact are: 2) Rapid and massive spread of infectious diseases (societal risk); 3) Weapons of mass destruction (geopolitical risk); 4) Interstate conflict with regional consequences (geopolitical risk), and 5) Failure of climate-change adaptation (environmental risk).

“Twenty-five years after the fall of the Berlin Wall, the world again faces the risk of major conflict between states,” said Margareta Drzeniek-Hanouz, Lead Economist – World Economic Forum. She added, however, that “today the means to wage such conflict, whether through cyberattack, competition for resources or sanctions and other economic tools, is broader than ever. Addressing all these possible triggers and seeking to return the world to a path of partnership, rather than competition, should be a priority for leaders as we enter 2015.”

The panel stressed that the risks are in most cases interconnected and thus have to be addressed in multiple ways. The report points out that the “interconnections between geopolitics and economics are intensifying because states are making greater use of economic tools, from regional integration and trade treaties to protectionist policies and cross-border investments, to establish relative geopolitical power. This threatens to undermine the logic of global economic cooperation and potentially the entire international rule-based system.”

One of the prime examples of the interconnectivity is the increasing urbanization of the world’s population. Axel P. Lehmann, Chief Risk Officer at Zurich Insurance Group pointed out that today around 50 percent of people live in cities, but by 2025 this will increases to 2/3, and reach 70 percent by 2050.

To mitigate the effects of urbanization the report considers how best to build sufficient resilience to mitigate the challenges associated with managing the world’s rapid and historical transition from predominantly rural to urban living. “Without doubt, urbanization has increased social well-being. But when cities develop too rapidly, their vulnerability increases: pandemics; breakdowns of or attacks on power, water or transport systems; and the effects of climate change are all major threats,” Lehmann said.

The report also addressed the rapid pace of innovation in emerging technologies, which includes discoveries in every field from “synthetic biology to artificial intelligence,” which also have “far-reaching societal, economic and ethical implications. Developing regulatory environments that are adaptive enough to safeguard their rapid development and allow their benefits to be reaped, while preventing their misuse and any unforeseen negative consequences is a critical challenge for leaders.

John Drzik, President of Global Risk and Specialties at Marsh, said: “Innovation is critical to global prosperity, but also creates new risks. We must anticipate the issues that will arise from emerging technologies, and develop the safeguards and governance to prevent avoidable disasters.”

Espen Barth Eide, Managing Director and Member of the Managing Board of the World Economic Forum, pointed out that the public’s “trust in government is breaking down” with the emergence of populist and anti-immigration parties in Europe, which “reduces governments’ collective ability to deal with crisis situations.” Unfortunately, this is occurring at a time when “more co-operation between nations and more understanding between countries” should be a priority.

Next week in the Swiss resort of Davos the world’s movers and shakers from governments, businesses and academia will meet in what is certainly the world’s supreme networking event and discuss possible ways of addressing some of these risks and trends before they get worse. They won’t solve all the world’s potential crises in a week, but at least they may be able to find ways to mitigate the threats posed by some of them.

Insurance Journal