French reinsurance giant SCOR has highlighted a number of trends expected to impact reinsurers over the next decade, creating opportunities in a rapidly changing risk landscape, but also potential challenges if not fully understood and embraced.
In its report on the expanding risk universe, SCOR highlighted major trends impacting the globe in a period of rapid change in which the increasing interconnectivity of risk means the role of re/insurers and risk mitigation experts will become more expansive.
The finance and re/insurance sectors are at the forefront of the fundamental shifts in business models, undergoing innovation in both modus operandi and in distribution and coverage of risks, leading the way in the creation of new payment solutions and moving from closed systems to crowdsourcing, open innovation and open source platforms.
The planet’s population is undergoing major demographic shifts, which according to SCOR, could trigger political, economic, social, cultural and environmental upheavals, particularly in Asia and Africa. This trend encompasses not only population growth, but also the increase in the ageing population, rapid urbanization with the development of mega cities and involuntary mass migration.
The reinsurer has listed artificial intelligence (AI), Eurozone break up, large volcanic eruption, extreme social unrest, autonomous vehicles, nano technologies, and permafrost thawing as risks that are considered to have a medium likelihood of impacting its business in the next 10 years.
SCOR explained that increasing interactions between natural risks on the one hand, and technological risks and human activities on the other, are creating new risk mutations.
“Human activity has magnified the consequences of natural catastrophes, which largely explains why their cost is trending upwards. First, climate change, of which human activity is a recognized cause, contributes to minor climate events as well as highly destructive major storms.
“Second, human habitation and wealth have become heavily concentrated in the world’s riskiest areas: coastlines, the slopes of volcanoes, riverbanks, earthquake-prone regions, and so on. And rampant urbanization has been amplifying the consequences of these events.”
Added to these factors is the increasing interconnectivity of risks, which amplifies the impact of what, in the past, would have been geographically isolated risks as these can affect global supply chains and trigger indirect consequences throughout the world.
In addition, said SCOR, certain technological developments have created natural catastrophe exposures to which our modern societies were not vulnerable in the past.
“Solar storms, which can seriously damage electrical systems – whether power grids or means of communication like satellites – have only become a major cause of concern in the last few decades. The largest solar storm on record, the Carrington Event of 1859, would cause a massive blackout if it happened today.”
Risks that are considered to have a low likelihood of impacting SCOR in the next ten years include water risks, shortage of materials, air pollution, declining land availability, antimicrobial resistance, genetic testing, emerging infectious diseases, endocrine disruptors, severe power blackout and radio frequency fields.
Significant trends with the potential to generate social and geopolitical instabilities include the increasing wealth gap within societies, the weakening of international governance and the increase of regulatory and economic uncertainty, and also terrorism.
As the risk universe expands, insurers and reinsurers are tasked with actively managing risks at every level, to ensure that technological progress and growth are enabled, while protecting societies against their potential downsides.