February 1, 2021 by David Gambrill
Risk managers globally are scrambling to respond to a number of financial risks related to the pandemic and the related economic meltdown, making credit risk one of their chief concerns for 2021, as reported in a new study by Deloitte. But are non-financial risks potentially falling through the cracks?
Risk managers surveyed in the Deloitte study also sounded the alarm about non-financial risks related to working from home, including operational resilience, conduct and compliance risk, and promoting a risk-aware culture.
“While almost all respondents rated their institutions as extremely or very effective at managing financial risks, the figure dropped to 65% for non-financial risk overall and was even lower for specific types and aspects of non-financial risk such as conduct and culture (55%), geopolitical (42%), and data quality (26%),” Deloitte reported in its 12th and most recent Global Risk Management Survey, released Monday. “Forty-four percent of institutions reported having a single individual who is accountable for oversight of the general category of non-financial risk. Many institutions have work to do to enhance their capabilities in this area.”
Deloitte conducted its survey from March to September 2020. Its findings are based on the responses of 57 financial services institutions around the world, across multiple financial services sectors (including insurance), representing a total of US$27.2 trillion in aggregate assets. Also, Deloitte conducted in-depth interviews with a number of senior risk executives to gain deeper insight into the issues highlighted in the survey.
Not surprisingly, when asked to name the top trends assuming more importance at their organizations over the next two years, risk managers responded with the obvious, here-and-now risks: The global financial crisis (48%) and global pandemics (42%).
One in five risk managers surveyed said credit risk, more than any other type of risk, would increase most in importance for their institutions over the next two years (only 3% said this in 2018).
“Sixty-two percent of respondents said that credit risk measurement will be an extremely or very high priority for their institutions over the next two years, with this being further iterated during the interviews,” Deloitte reported. “Respondents said that many areas of credit risk management will be extremely or very challenging…including collateral valuation (48%), commercial credit (48%), commercial real estate (43%), unsecured credit (43%), and leveraged lending (41%).”
But while minding the store regarding credit and other financial risks, risk managers were also keeping an eye out for other non-financial risks.
The dispersion of the global workforce generally is a common theme underlying a number of non-financial risks cited in the Deloitte study. In Canada, a recent Canadian Underwriter survey found that 86% of the Canadian P&C insurance workforce is working from home to avoid the spread of COVID-19.
In addition to cyber-risk, other non-financial risks of particular concern to corporate risk managers include:
Feature image courtesy of iStock.ca/PIKSEL