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Cyber risk, terrorism and new compensation structures for long-term bodily injuries are among the emerging risks facing reinsurers and insurers, according to a report from Guy Carpenter & Co. L.L.C.
“Because of increasing global interconnectedness and explosive use of mobile devices and social media, the risk of cyber attacks and data breaches have increased exponentially,” the reinsurance broker's “Ahead of the Curve: Understanding Emerging Risks” report said.
Cyber attacks are now seen as one of the most serious economic and national security issues facing governments around the world, the report said, and can burden policyholder companies with significant costs and potentially put a company's entire supply chain at risk.
The report also suggests that compensation for long-term care of bodily injuries is becoming an emerging risk for insurers, as many claimants are now opting for annuities or periodic payment orders rather than lump-sum compensation, increasing uncertainty for the insurer.
With regard to terrorism the report said, “Given the growing population, regional conflicts producing a broad list of potential instigators, the expansive reach of social media for extremists spreading their messages and recruiting and the diversity of possible attack modes to cause human and economic loss, terrorism does qualify as an emerging risk.”
In addition to the risk of terrorism itself, the Guy Carpenter report noted uncertainty over the renewal of the U.S. Terrorism Risk Insurance Program Reauthorization Act, set for expiration at the end of the year.
“Without a successful renewal of TRIPRA, it is expected that insurance capacity for terrorism coverage will diminish and insurers and consumers may face substantial price increases, threatening the improving U.S. economy,” the report said.
The report notes that whatever the emerging risk, the main challenge is modeling and quantifying the risk's potential impact. “Only in this way can (re)insurers leverage their key capability, which is the creation of value by risk management,” the report said.
While natural disasters such as earthquakes, tsunamis and flooding have disrupted supply chains around the world, cyber attacks pose even greater risks as companies rely more on computers and the Internet to conduct their business.