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Aging infrastructure, the spread of 5G technology, a potential economic downturn, the growth of genetic testing and climate change are the five emerging risks with the highest potential impact on the insurance and reinsurance industry in 2019, according to a new Swiss Re Institute report.
Technological improvements are ongoing and hardware in critical infrastructure, including smart electric power grids or pipelines and hospitals, is often outdated, according to the Swiss Re SONAR report on new emerging risks published on Wednesday.
“As a consequence, insurers face higher risk accumulation unexpected loss potential in the areas of property damage, bodily injury, business interruption and cyber risk,” the report said.
In addition, advancements in 5G mobile networks will enable wireless connectivity in real time for Internet of Things devices, according to the report.
“Current concerns regarding potential negative health effects from electromagnetic fields are likely to increase,” the report said. “Hackers can also exploit 5G speed and volume to acquire (or steal) more data faster. Major concerns are possible privacy and security breaches and espionage.”
Meanwhile, there is “a growing consensus that another economic downturn will need a fiscal response,” which could benefit the insurance and reinsurance industry if policy changes bring growth and financial stability, the report said.
“The possible flipside is a rise in uncertainty, causing higher financial market volatility and declines in asset valuations,” the report stated.
Climate change has been on Swiss Re’s emerging risk agenda since 1989, but “has fully emerged as a real and present-day problem,” with climate risks stemming from heat waves, floods, droughts, fires and vector-borne diseases potentially putting millions of lives and health care services at risk, according to the report.
“Without action, mortality rates and health care costs could soar and this would have significant consequences for the health, workers compensation and life insurance lines of business,” the report stated.
Meanwhile, genetic testing has become more affordable and widely adopted by public health systems and individuals, which has “significant” implications for life insurers and their regulators, according to the report.
The top five emerging risks highlighted in last year’s report were asbestos losses, geopolitical risk, algorithms susceptible to discriminatory bias, lurking cyber risks and the erosion of risk diversification, according to the report.
This year’s report highlighted six macro trends in the societal environment: the growing middle class in high-growth markets, longevity and radical medical innovation, connected and collaborative society, mass migration and urbanization, the future of work and talent gaps and rising social inequality and unrest.
“The economic relevance of the middle class remains all pervasive but increasingly, the onus is shifting to the emerging economies, most notably Asia Pacific,” the report stated.
The five macro trends in the political environment highlighted in the report are the public sector moving risk to the private sector, protectionism and fragmented regulation, increasing nationalism, instability of geopolitical and economic systems and low yield environment and risk of inflation.
“Globalization momentum has slowed over the past decade,” the report stated. “Relative to world GDP, cross-border investment, trade, bank loans and supply chains have all been shrinking or stagnating. This started well before US Donald Trump’s Presidency. His anti-globalization campaign, which has been a political success for his administration, has since been copied around the world.”
In the technological and natural environment, the seven macro trends are climate change and resource scarcity, the structural change of energy production, distribution and consumption, massive expansion of digital and cyber risk, data as an asset, technology application as efficiency play, disruptive digital technologies and autonomous transportation and robotics, according to the report.
“The frequency and severity of risks resulting from cyberattacks are expected to grow significantly over the next years,” the report stated. “Recent examples have revealed how unprepared companies and government agencies are for such attacks. The need for cyber resilience has become a main focus of attention among corporate clients and insurance companies, triggering insurance demand. Cyber risk presents one of the largest opportunities for the re/insurance industry while simultaneously also posing one of the biggest challenges. Keeping up with the changes in the cyber and technology space and developing solutions to cover the resulting and ever-evolving risks is no mean feat.”
In the competitive and business environment, the five macro trends are insurance and reinsurance value chain disaggregation, the rise of collateralized reinsurance, strategic partnerships with non-insurance companies and institutions, regional champions going global and increasing digital consumer interaction, according to the report.
“Primary insurers continue in their struggle to reshape their traditional systems and processes to serve the consumer base with next-generation insurance solutions,” the report stated.
A report by Swiss Re Ltd. has found that reduced market access due to protectionism, regulatory fragmentation and cloud risk accumulation are the top emerging risks for the insurance industry, Middle East Insurance Review reported. The use of regulation to control capital flows and encourage protectionism could eventually undermine the business models of insurers across the world, the report said.