An emergent risk is a term used to describe risks that are poorly understood but are expected to grow significantly in significance. These risks lack a track record that can be used to estimate likely probabilities and expected losses.
Key Facts
- Definition: Emergent risk is a term used to describe risks that are poorly understood but are expected to grow significantly in significance.
- Lack of track record: Unlike other risks, emergent risks do not have a track record that can be used to estimate likely probabilities and expected losses.
- Uncertain impacts: Emerging risks can belong to different categories. One category includes risks with uncertain impacts, where uncertainty arises from new products, services, behaviors, or regulations.
- Systemic impacts: Another category of emerging risks includes risks with systemic impacts. These risks stem from technological systems with multiple interactions and systemic dependencies.
- Unexpected impacts: Risks with unexpected impacts are also considered emerging risks. These risks emerge from the use of established technologies, products, or processes in evolving environments or contexts.
- Examples: Examples of emerging risks include new technologies like nanotechnology or synthetic biology, complex interconnected systems in energy, transportation, communication, and information technology, and the use of established technologies in evolving environments.
- Importance for insurers: Insurers, particularly casualty insurers, face emerging risks across all three categories mentioned above. It is crucial for insurers to identify and manage these risks to protect their companies.
Categories of Emerging Risks
1. Uncertain Impacts:
- Risks that arise from new products, services, behaviors, or regulations.
- Uncertainty stems from the lack of knowledge about the potential consequences of these new developments.
2. Systemic Impacts:
- Risks that stem from technological systems with multiple interactions and systemic dependencies.
- These risks can have widespread and interconnected effects, making them difficult to predict and manage.
3. Unexpected Impacts:
- Risks that emerge from the use of established technologies, products, or processes in evolving environments or contexts.
- These risks can be difficult to identify and assess because they may not be immediately apparent.
Examples of Emerging Risks
- New technologies like nanotechnology or synthetic biology.
- Complex interconnected systems in energy, transportation, communication, and information technology.
- The use of established technologies in evolving environments, such as the use of autonomous vehicles or the increasing use of artificial intelligence.
Importance for Insurers
Insurers, particularly casualty insurers, face emerging risks across all three categories mentioned above. It is crucial for insurers to identify and manage these risks to protect their companies.
Conclusion
Emerging risks pose significant challenges for risk managers and decision-makers. By understanding the different categories of emerging risks and their potential impacts, organizations can take steps to mitigate these risks and protect their interests.
Sources:
- https://ocro.stanford.edu/enterprise-risk-management-erm/key-definitions/definition-emerging-risk
- https://www.riskythinking.com/glossary/emergent_risk
- https://www.praedicat.com/three-definitions-of-emerging-risk/
FAQs
What is an emergent risk?
An emergent risk is a term used to describe risks that are poorly understood but are expected to grow significantly in significance.
What are the different categories of emerging risks?
There are three main categories of emerging risks:
– Risks with uncertain impacts
– Risks with systemic impacts
– Risks with unexpected impacts
What are some examples of emerging risks?
Examples of emerging risks include new technologies like nanotechnology or synthetic biology, complex interconnected systems in energy, transportation, communication, and information technology, and the use of established technologies in evolving environments, such as the use of autonomous vehicles or the increasing use of artificial intelligence.
Why are emerging risks important for insurers?
Insurers, particularly casualty insurers, face emerging risks across all three categories mentioned above. It is crucial for insurers to identify and manage these risks to protect their companies.
How can organizations mitigate emerging risks?
Organizations can mitigate emerging risks by:
– Identifying and assessing potential emerging risks
– Developing strategies to reduce the likelihood and impact of these risks
– Implementing risk management controls
– Monitoring and reviewing emerging risks on an ongoing basis
What are some challenges associated with managing emerging risks?
Some challenges associated with managing emerging risks include:
– The difficulty in identifying and assessing risks that are poorly understood
– The lack of historical data to inform risk management decisions
– The interconnectedness of many emerging risks, which can make it difficult to isolate and manage individual risks
What role do stakeholders play in managing emerging risks?
Stakeholders play a critical role in managing emerging risks by:
– Providing input on the identification and assessment of emerging risks
– Developing and implementing strategies to mitigate these risks
– Monitoring and reviewing the effectiveness of risk management efforts
How can organizations stay informed about emerging risks?
Organizations can stay informed about emerging risks by:
– Monitoring news and developments in relevant industries and sectors
– Conducting regular risk assessments
– Participating in industry associations and networks
– Subscribing to risk management publications and newsletters