Risks of the future

We all have our own opinions on what the risks of the future will be. For some insurers there are clear emerging risks, while for others, it’s more complex. FULLCOVER asked insurers Swiss Re, Lloyd’s, Zurich and Hannover Re and global medical assistance firm, International SOS for their views on the top five risks of the future.

The majority of respondents cited cyber/data security as the number one risk, highlighting digitalisation, FinTech, sharing economies and the ‘internet of things’ as key components. Second was extreme weather, including a failure of climate change mitigation/adaption, third, political risk, including social instability and fourth, terrorism.

From here the future risk landscape differed. Respondents suggested; regulatory, macro‑economic, operational, financial repression, large‑scale involuntary migration, human‑induced earthquakes, trust in public/international institutions, natural disasters, growing urbanisation and beef consumption litigation.

On the medical side, day‑to‑day risks of road safety, malaria and cardiovascular disease were identified. When asked what they were doing to assess and measure the impact of these risks, the response was ‘there isn’t one tool to measure the impact of risk’. Various approaches, from surveys/ metrics, collaboration with experts, data sharing (including historic data) and social media to continual research, monitoring/evaluation, scenario planning and modelling are used. All concede there are challenges in assessing the impact of emerging risks that are yet to materialise into insurable losses.

In response to how can we change these risks into opportunities and are you developing insurance solutions to transfer these risks, respondents agreed ‘the nature of global risk means they are interconnected and so difficult for any country, company or business to mitigate’. A multi‑stakeholder approach, effective risk management and risk transfer can all address the risk. Solutions include; having strong digital security and managing breach costs through cyber insurance, risk management in the supply chain combined with business interruption cover to address natural disaster risks and new product development to address emerging risk from legal rulings and the impact of legislation.

When asked how will big data and analytics transform the insurance industry, the consensus was ‘big data will fundamentally sharpen the industry’s understanding of risk’. Data generated by mobile devices can be used to better price risks and products can be delivered, any time, through multiple distribution channels increasing access to new markets and reducing transactional costs.

Analytics allows insurers to understand the risks and their portfolios in a more granular way so they can work more closely with customers to identify and develop effective and efficient risk management strategies. It can also help identify new risk pools and innovative products/services to mitigate them, resulting in greater operational efficiency and accuracy with pricing/claims handling. But there are big data risks ‑ the hype for data can lead to the ‘manufacturing’ of phoney data and false modelling that does not reflect reality, resulting in risk mispricing.

The final question, are traditional insurance companies prepared to deal with the risks stemming from the ‘uberisation’ of society prompted ‘digitalisation will create new distribution and sales models opening up many opportunities in risk assessment, underwriting, claims handling and operations’.

The ‘fourth industrial revolution’ is changing the way people work and live. Connectivity makes remote working easier, creating greater global competition, yet lower‑skilled workers are more likely to see their jobs disappear to automation. Our move to a sharing and collaborative economy increases the number of jobs that fall outside the standard employment contract model, the so‑called ‘gig economy’.

Societal changes, such as the emergence of the sharing economy, impacts on liability issues and so the industry must respond with appropriate insurance products. Whatever the model, the need for specialist underwriting will always be there.