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Climate change, cyber top emerging risk concerns: A.M. Best


Climate change, cyber and market/economic/financial risk top the list of emerging risks with which enterprise risk managers cope, according to a report released Monday by ratings agency A.M. Best & Co.

Infectious diseases/contagion/pandemics placed seventh on  Best’s list of the top 10 emerging risks, even against the backdrop of the coronavirus outbreak.

The report is based on Best’s examination of the impact of more than 60 potential risks on U.S. insurers’ claims frequency and severity.

The threats and challenges posed by such risks requires that “emerging risk management” be “an essential part of the ERM (enterprise risk management) toolkit,” Best said in its report.

“Insurers need to continually scan the ecosystem for risks, quantify the impact of emerging risks, and be proactive in designing mitigation plans in the event that these risks manifest themselves,” the report said.

Climate change, and the added exposures resulting from increased frequency of hurricanes, drought and wildfires, is hitting insurers, Best said, providing data that showed the number of natural catastrophes has risen steadily since 1970.

“With the frequency and severity of weather-related events on the rise, insurers have been severely impacted by related losses,” Best said, adding, “Insurers see wildfires as an increasingly frequent and severe emerging risk.”

Cyber exposures ranked second on the Best list, with more than 4 billion records exposed by data breaches in the first half of 2019, according to Forbes, Best said. The average cost of a single data breach in 2019 was $3.92 million, according to  Varonis Systems, a software company headquartered in New York.

Best noted that “Cyber is another rapidly evolving risk whose impacts may span multiple lines.” It said that cyberattacks are expected to grow, and worldwide spending on cybersecurity is estimated to reach more than $133 billion by 2022.

While market/economic/financial risks, ranked third on the list, have been more of a focus for life and annuity insurers, they are concerns for the property/casualty sector as well, Best said.

“Equity market volatility has traditionally been a concern for L/A (life/annuity),” Best said, but “among property/casualty insurers and reinsurers, fixed-income instruments constitute a major portion of their investments … and a predominantly fixed-income portfolio in a prolonged low-interest rate environment has led to a declining investment income contribution to the overall bottom line.”

More insurance and risk management news on the coronavirus crisis here.