Canada Tops Global Threat List

By Romana King | August 12, 2009

Photo credit: Dave Starrett

Political risk is not new and threats, such as piracy and civil unrest, have been around for centuries.

However, add to these threats the worst global recession in 70 years—with no immediate prospect of economic recovery for emerging or developed nations—and these trans-border threats quickly adapt and evolve into redefined risks that must be conceptually and practically addressed.

In an effort to acknowledge these transforming global risks, many companies are attempting to create and establish business plans and strategies to offset and mitigate the rise of these risks.

10 Essential Lessons From Credit Crisis

• Build The Risk Plan. Success Will Follow.
• 85 Rules of Risk Management
• Risk Perspectives
• Canada tops global threat list
• 2009 Terrorism Map (pdf)
• Risk Management: Values, Sample Mission Statement, Definition, Loss Checklist

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According to a report, released by the Economist Intelligence Unit (EIU) in March 2009, businesses must learn 10 essential lessons from the events of the last 18 months:

1. Risk management must be given greater authority;
2. Senior executives must lead risk management from the top;
3. Institutions need to review the level of risk expertise in their organization, particularly at the highest levels;
4. Institutions should pay more attention to the data that populates risk models, and must combine this output with human judgement;
5. Stress testing and scenario planning can arm executives with an appropriate response to events;
6. Incentive systems must be constructed so that they reward long-term stability, not short-term profit;
7. Risk factors should be consolidated across all the institution’s operations;
8. Institutions should ensure that they do not rely too heavily on data from external providers;
9. A careful balance must be struck between the centralization and decentralization of risk;
10. Risk management systems should be adaptive rather than static.

As such, authors of the EIU report prompt corporations to ask the following:

• Do risk professionals have appropriate authority in the organization? For example, if a problem or a potential problem arose, is there confidence that there are processes in place for this issue to be elevated to executive management?
• Is there an individual in the organization with the overall responsibility for risk management? Are there independent committees/people in place to review risk management practices?
• Does the executive team contain individuals from diverse backgrounds? Are your senior executives insulated and is information filtered as it rises through the organizational hierarchy?
• Does your organization tend to rely on historical data? To what extent is human judgment and gut feeling used?  What combination of qualitative and quantitative inputs does your organization use to assess and mitigate risks?
• To what extent are different scenarios considered when setting long-term strategies? Is there a tendency to rely on “official future”?
• Is there a common language of risk to ensure clarity of understanding across and throughout the organization?
• Does your organization rely on external data sources? Does your organization benchmark this information and do you know and understand the methodology used to collect this externally-sourced data?

The authors state, “to counteract [the aforementioned problems], risk management must be an independent function that is given sufficient authority to challenge risk-takers effectively.”

Political Threats The Biggest Threat: Lloyds

In another report, released by Lloyd’s of London in June, political risk is identified ast he biggest threat to trans-border business. The three biggest political threats are:

1. Expropriation;
2. Civil unrest; and
3. Piracy & kidnapping.

According to the report, “the global recession is bringing new patterns to existing risks and magnifying others.”

For example, in many African states the recession will weaken state infrastructure and lead to increased nationalization. Add to this, civil unrest in Europe and Asia, increased piracy in Asia and Latin America and a rise in kidnappings of executives and business personnel, and the potential impact could be in the millions.

Add One More Threat: Terrorism (And Canada on top of list)

However, according to Craig Preston, Aon Re’s executive director of the Crisis Management Division, terrorism tops the list as this year’s biggest business threat.

Businesses need to take steps to put effective counterterrorism risk management in place if they want to avoid lengthy and damaging litigation, explained Preston, during the  launch of Aon’s latest terrorism threat map.

“Organizations are now much more conscious of their duty of care and corporate governance responsibilities,” he says. “As society becomes more and more litigious, those with risk management responsibility need to be seen to do all that is reasonable to protect their brand, assets and people against a terrorist attack.”

Preston pointed out that any business that does not take steps to mitigate the risk of terrorism might find itself open to possible litigation. Preston said business can mitigate against the threat of attacks by buying terrorism insurance that provides coverage against property damage, business interruption and legal liability, which he said are of increasing importance.

“But insurance is only a part of the solution. Effective counterterrorism risk management goes beyond just risk transfer; it requires a holistic approach to ensure that, for example, the risk of being caught up in another incident like the attack in Mumbai is reduced, but that effective plans and procedures are in place if such an incident does occur.”

Aon's 2009 terrorism threat map shows elevated terrorism threats remain for major Western countries, while al-Qaida's center of gravity shifted from Saudia Arabia to neighboring Yemen, under the pressure of Saudi security efforts.

According to Aon, 28 countries are listed as having an elevated level of terrorism risk, including:

• United States
• Canada
• France
• Germany
• Indonesia.

A total of 19 countries are shown as being at high risk from terrorism, including the United Kingdom, Russia, Spain, Turkey and Saudi Arabia. Finally, there are eight countries in the severe category, including Iraq, Afghanistan, Pakistan, Sri Lanka, India, Somalia, Yemen and Palestine.

Another 118 countries are rated as being low risk, and 31 are rated as guarded risk, with the latter including Mexico, Brazil, South Africa and China.