October 30th, 2013

Emerging Risks

Posted at 1:00 AM ET

The (re)insurance sector is today operating in a rapidly changing and uncertain risk landscape. Against this backdrop, it is important that (re)insurers attempt to identify and understand emerging risks to plan for the long term and challenge assumptions about the future risk landscape environment.

Emerging risks can be new and unforeseen events and/or the evolution of previously known risks that are difficult to quantify but likely to have a significant impact on the (re)insurance sector. Many new risks arise as technological, economic and scientific advancements are made, meaning there is little historical data with which modelers and underwriters can work. Conversely, emerging risks can already be present in an insurer’s existing book of business but the potential costs may not yet be known or understood. Either way, there is often uncertainty over their significance while their consequences can be ambiguous. The increasingly interconnected global economy is also adding to the complexity of emerging risks, meaning existing underwriting and risk management best practices may not be sufficient in the future.

By analyzing emerging risks, carriers can attempt to mitigate the surprise element and begin to understand potential growth opportunities. While this process will not always result in accurate predictions, attempting to identify risks that have the potential to cause significant losses is central to the role of (re)insurance. By seeking to better understand future challenges, carriers will be well prepared to react to an evolving risk landscape and support future economic growth by being able to offer adequate insurance cover.

This report seeks to raise the level of awareness for several key emerging risks that are already present and have the potential to develop in the near future. The three emerging risks of cyber, climate change and space are explored specifically and their implications on businesses and (re)insurers are discussed. These risks not only threaten companies in predictable ways with increased property damage and liability vulnerability, but also have the potential to trigger costly secondary impacts such as the severe disruption of supply chains and power networks. Reputational risk is another concern.

When analyzing the potential fallout from these risks, it is clear that today’s global economy has created highly complex and interconnected systems that are difficult to control and predict. Of course, emerging risks are not only confined to the threats emanating from cyber, climate change and space. The emerging risk landscape is vast, with threats ranging from pandemics to nanotechnology. Others are yet to surface. Companies are consequently seeking advice and guidance in attempting to identify and measure future risks. Guy Carpenter and Marsh are assisting risk carriers in meeting these challenges with broking experience, analytical expertise and advisory acumen.

Click here to read the full report:  Tomorrow Never Knows - Emerging Risks Report >>

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