David Cole, Chief Risk Officer at Swiss Re, said, "We've seen examples of over-regulation, like the response to the Icelandic volcanic eruptions, or under-regulation, such as the subprime or eurozone crises. We need to get the balance right with regulations and, to that end, our safeguards must be anticipatory rather than reactive. It's equally important that regulations be made more flexible to effectively respond to change."

The third area of concern is described by the World Economic Forum as 'The Dark Side of Connectivity' and consists of cybercrime, hyperconnectivity and online security. Steve Wilson, Chief Risk Officer for General Insurance at Zurich, explained, "The Arab Spring demonstrated the power of interconnected communications services to drive personal freedom, yet the same technology facilitated riots in London. Governments, societies and businesses need to better understand the interconnectivity of risk in today's technologies if we are truly to reap the benefits they offer."

The report describes 50 global risks and groups them into economic, environmental, geopolitical, societal and technological categories. The 2012 'Centres of Gravity', those risks perceived by survey respondents to be of greatest systemic importance within each of the five risk categories are: chronic fiscal imbalance, rising greenhouse gas emissions, global governance failure, unsustainable population growth and critical systems failure. These are the areas that, according to the report, 'should serve as focal points to guide strategic interventions'.

The risk with the highest likelihood was severe income disparity, followed by chronic fiscal imbalance, rising greenhouse gas emissions, cyber attacks and water supply crises. The risk with the greatest impact was major systemic financial failure, followed by water supply crises, food shortage crises, chronic fiscal imbalance, and extreme volatility in energy and agriculture prices.

The report also highlights 'X Factors'—emerging concerns with still unknown consequences that warrant more research. These include a volcanic winter, mega accidents, resource wars, cyber neotribalism, financial illiteracy, constant connectivity and epigenetics. The report also includes a special chapter on key lessons to be gleaned from the Japan earthquake and the subsequent crisis at the Fukushima nuclear plant.

It concludes that decision-makers need to improve understanding of incentives that will improve collaboration in response to global risks, and that trust, or lack of trust, is perceived to be a crucial factor in how risks may manifest themselves. And finally, 'communication and information sharing on risks must be improved by introducing greater transparency about uncertainty and conveying it to the public in a meaningful way'.

The interconnectivity of risk is a major theme in the report and is highlighted in the preface by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum who described the report as a 'call to action' for the international community to improve current efforts at coordination and collaboration, as none of the global risks highlighted respect national boundaries.

Zurich's Steve Wilson said: "We are in the business of risk. Understanding risk is something we are trying to do all the time. We think we know and understand risks such as North American hurricanes relatively well, but what this report helps us with is: how do we understand some of these emerging risks, particularly around the connectivity of risk."

The World Economic Forum stresses that the report is not a forecast. W Lee Howell, Managing Director, Risk Response Network, World Economic Forum, explained: "What we are trying to do is get a sense from participants of the likelihood and the impact of these risks in a ten year timeframe...it is about raising the flag and sounding the alarm."

The World Economic Forum also stresses that the report is not a policy document but is designed to raise awareness of the issues amongst policymakers—'to inform and alert decision-makers on risk perceptions and emerging cases'. According to Mr Howell, "We are trying to get the best diagnostic that we can provide, and the policy makers have to think about the prescription and the approaches to that."

Swiss Re's David Cole said: "One of the key functions of risk management is to increase awareness, and what we are trying to do is to create a common language. The key role of any risk manager is to try to ask the right question. You won't always have the answers to those questions, but at least try to pose the right questions to the right people and then let them work on some of the answers."

The global risk report is published in cooperation with Marsh & McLennan Companies, Swiss Re, The Wharton Center for Risk Management and Zurich.

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