Canadian Underwriter

Innovation, yes. But don’t forget to manage the risks.

August 10, 2018   by Jason Contant

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While Canadian organizations are investing in emerging technologies and innovation, few of them are managing the associated risks, a report from PwC Canada suggests.

Jennifer Johnson, a partner and national financial services leader with PwC Canada, says that when she thinks about innovation, it can be about introducing new technology, or it can be about introducing new strategies, approaches or ideas. Either way, there are associated risks attached to each.

On the technology side, there are two unique risks associated with leveraging emerging technologies such as artificial intelligence, blockchain or robotic process automation:

  • not understanding the inner workings of the new technologies.
  • not understanding the inherent limitations of the new technologies.

Organizations that don’t fully understand the new technologies they are introducing – such as how nodes work in a blockchain network, for example – may not be managing or mitigating their risk exposures comprehensively.

A PwC Canada report released in June found that while most (85%) of Canadian organizations are investing in emerging technologies, few of them are managing the risks associated with technology, such as cybersecurity threats and lack of talent.

If innovation refers to introducing new strategies, ideas, processes, etc., organizations undertaking an innovation effort need to have a clear understanding of the level of investment required (both monetary and non-monetary), and also what might be lost if all doesn’t go according to plan.

“I’ve seen a number of clients that have undertaken innovation efforts without having a clear understanding of what they’re willing to put at risk if it doesn’t go the way they want, and what they might lose,” Johnson said. Some are not able to articulate the “upside” of the risk — e.g. what the company may gain by succeeding.

So, what can be done to help mitigate the risks associated with technology or other innovation efforts?

A lot of risk management and internal audit teams don’t necessarily have the required technology expertise or change management skills in-house, Johnson observes. She recommends bringing individuals with expertise into the organization, or partnering with companies that have the requisite “deep technological understanding.” Another option is to team up with innovation hubs and universities to cultivate a broader culture of innovation.

The key is to work with partners who are knowledgeable, but who can also keep the discussions basic for those in the organization who don’t share the same expertise.