Table showing the top five global risks in terms of likelihoodNever before has risk management and effective scenario
modelling been so crucial. For insurers and other business at the
coalface of consumer markets and globalisation this is a resounding
message that comes through in the World Economic Forum’s (WEF)
Global Risks Report 2012.

Now in its seventh edition, the
report draws on comment from 469 industry leaders and experts in
specific fields and is published in cooperation with Marsh &
McLennan Companies, Swiss Re, the Wharton Center for Risk
Management and Zurich Financial Services.

Laying harsh realities on the
table, the WEF warns of the world’s vulnerability to further
economic shocks and that social upheaval is threatening to derail
the progress that globalisation has brought.

Out of 50 risks identified as being
the most prevalent over the next 10 years, topping the list is what
the WEF terms “severe income disparity” with “chronic fiscal
imbalances” coming in second. These two risks combined are a
potentially deadly cocktail.

The WEF stresses: “[They] threaten
global growth as they are drivers of nationalism, populism and
protectionism at a time when the world remains vulnerable to
systemic financial shocks, as well as possible food and water

The WEF believes that the world is
now witnessing the emergence of dystopia, particularly in developed
economies. The opposite of utopia, dystopia refers to what happens
when attempts to build a better world go wrong.

Indicative of dystopia, John Drzik,
CEO of Oliver Wyman Group, observes: “Individuals are increasingly
being asked to bear risks previously assumed by governments and
companies to obtain a secure retirement and access to quality
health care.”

Linked to this in an increasing
number of countries are ageing populations. Looking at developed
economies, the WEF notes that young adults are increasingly
burdened by having to support a growing population of elderly
citizens, save for their own old age and bear the brunt of
austerity measures required to offset growing national debts.

Many developed and developing
economies, notes the WEF, are also faced with high levels of
unemployment, especially among young adults. This only fuels the
income disparity problem.

Persistently high unemployment,
warns the WEF, presents “the most significant economic and
political issue faced by leaders across large swathes of the

Allianz notes in an opinion piece
published in January 2012 that financial crises, and governments’
response to them, are throwing more people out of work.

“A global jobs recession looms, and
experts warn it will lead to civil unrest unless alternative
solutions are found,” stresses Allianz.

Nearly two-thirds of advanced
economies and half of emerging and developing markets are
experiencing a slowdown in employment, adds the insurer.

The WEF predicts that 2012 is
likely to see “increasing levels of civil unrest” as a result of
rising unemployment. This, notes Allianz, is partly because young
people are hit especially hard.

According to the International
Labour Organisation, unemployment among the youth is two to three
times higher than adult unemployment. In Spain, for example, it
stands at 45%.

The big question is: what now? Summing up the situation, Drzik
concludes: “The [WEF] report is a wake-up call to both the public
and private sectors to come up with constructive ways to realign
the expectations of an increasingly anxious global community.”