The release of Swiss Re’s SONAR report, a crowdsourcing tool leveraging the firm’s internal risk management experience, highlights what they believe to be the most compelling emerging risks re/insurers face globally.
Emerging risks are volatile and hard to quantify due to the pace at which they evolve but have the potential to significantly impact society and industry
Of the 18 emerging risk themes and 7 emerging trend spotlights featured in the report – all of which are relevant to life and non-life insurance areas as well as asset management – Swiss Re placed emphasis on 5 of with the highest impact potential.
Outlining the economic and political power shift currently unfolding between the east and the west, the report predicts a multi-polar landscape in which democratic influences decline and relevance of global governance institutions erodes, leading to turmoil in financial markets and an erosion of legal rules that threatens global business.
Secondly, Swiss Re points to the possible erosion of risk diversification- due to national protectionism and regulatory fragmentation- jeopardising the international diversification and free flow of capital necessary to run a global re/insurance business.
Asbestos has also been deemed a major emerging threat, with UN estimates putting the number of Europe’s population still exposed to the material at one third. The report puts current losses from asbestos related incidents at $100 billion and rising.
Unsurprisingly, the threat of cyber related risks are highlighted, particularly the potential for dormant vulnerabilities in hardware and software creating a very long tail risk. The recent Wannacry attack, which spanned nearly 150 countries and 300,000 systems, as well as the $2.7 billion ‘silent cyber’ losses attributed to the Petya Malware, only further emphasises this issue.
Finally, the report draws attention to the increasing commonality of business processes driven by algorithms. Often considered objective, they model their actions on human judgement, making them not infallible. Discriminatory bias may also translate into defective modelling and prediction, bringing a two-fold risk to insurance and other industries.
Patrick Raaflaub, Swiss Re’s Group Chief Risk Officer, commented, “Our SONAR report is not about forecasting the future or covering all emerging risks, but rather about preparing for its potentialities. The more transparency and the more time we have, the better we can adapt to the changing risk landscape.”
The SONAR report from Swiss Re can be downloaded here.