Loss reserves are arguably one of the most difficult risks to estimate and monitor. In fact, inadequate pricing and deficient loss reserves have been the leading cause of property/casualty company impairments. According to A.M. Best, from 1969 to 2009 they triggered approximately 40 percent of all impairments - four times more than those emanating from natural catastrophes (1). There are many uncertainties in managing long-tailed, heavily legislated lines of business that can be triggered from emerging risks. Unforeseen inflation and anticipated legislative changes over a 10 to 30 year period present many demands. In order to prepare for emerging risk scenarios, future trends and related uncertainties need to be explicitly identified, contemplated and estimated.
Posts Tagged ‘Reinsurance’
Growth projections for the drone or Unmanned Aerial Systems (UAS) sector are nothing short of phenomenal, as the opportunities and advantages afforded by using this type of machinery in construction, agriculture, energy/utilities, mining, real estate, news media, film production and public safety become increasingly more apparent each passing day. Nevertheless, the potential economic benefits are considered to be vast, expecting to generate an estimated economic benefit of USD82 billion along with 100,000 jobs by 2025 (1). This rapid increase in the number of drones is prompting concerns for:
- Heightened collision risk for commercial airplanes as reports of drones in close proximity continue to make the headlines in the United States and the United Kingdom
- Privacy concerns from remotely controlled autonomous UAS equipped with cameras
- Increased concern of drones being hacked or used as weapons by terrorists.
Many scientists view nanotechnology as the revolutionary technology of the 21st century. Just as plastics were a pervasive and revolutionary product of the 20th century, nanotechnology products are having widespread use and change our lives in a myriad of ways. This technology has quickly evolved into a global force that is transforming manufacturing, medicine and an ever increasing number of consumer/food goods. The field has become a worldwide market worth an estimated USD 1 trillion and is projected to grow at a rate of 16.5 percent through 2020 (1).
Risk is a major barrier to innovation. Taking a risk, however, is almost always the first step in any type of progress. The productivity of the global economy depends on companies that are willing to find new and better ways of doing things despite the potential perils involved. If they start to be ruled by fear of liability, our global development could be in jeopardy. By helping businesses manage the risks associated with product development, (re)insurers play an important role in stimulating innovation and helping our world move forward in positive ways. From the early days of marine exploration, to the first satellite launch, to the development of state-of-the-art technologies, (re)insurers have provided a critical safety net that has supported and encouraged the creative process. Given the continued transformative potential of emerging technologies such as nanotechnology, 3-D printing, aerial drones and self-driving automobiles, and their applications in virtually every industry, it is incumbent upon insurers and reinsurers to help accelerate the commercialization and benefits of these innovations to society. At the same time, it is critical to thoroughly understand and manage the risks.
The impacts to society from changes in longevity and life expectancy will be wide-ranging and incredibly difficult issues to grapple with. A 2012 International Monetary Fund (IMF) study revealed that if individuals lived three years longer than expected the cost of aging could increase by 50 percent. This translates to 50 percent of 2010 gross domestic product (GDP) in advanced economies and 25 percent of 2010 GDP in emerging economies. Globally that amounts to tens of trillions of US dollars. The United Nations expects the aggregate expenses of the elderly will double over the period between 2010 and 2050. The figure below shows the projected trend of rising life expectancy to continue in all regions of the globe regardless of economic advancement.
The aggregation of risk is ever more present because cyber insurance is a global class of business with losses emanating from any part of the world. The non-physical nature of cyber risk makes it possible for (re)insurers to suffer losses from a vast number of insureds spread across different geographies as a result of a single event. That creates aggregation risk, for which an insurer or reinsurer could find itself burdened with catastrophic losses.
The picture for small to medium-sized enterprises or SMEs in the United Kingdom (see figure below) is broadly consistent with that for larger firms, but for this segment of companies, (re)insurers see a higher incidence of cyber crime. For example, a small broker was targeted by a phishing scam, where an e-mail containing a link to malicious software was sent to the financial controller within the business. The controller was tricked into installing the software onto his personal computer, and this software was used to steal banking credentials. The cyber criminals were subsequently able to complete electronic wire transfers to the total of GBP100,000 over the following 10 days.
Guy Carpenter announced the release of its Public Sector Risk Report, Partnerships: The Way to Public Sector Risk Financing, which examines the shifting economic and risk landscapes that are driving public sector entities to consider new approaches to risk financing.
As businesses, both large and small, throughout all sectors of industry, become more and more reliant on technology to improve service efficiencies and functionalities, cyber risk has become one of the most pressing public topics addressed in corporate boardrooms and by governments across the globe. The corresponding awareness of a business’s susceptibility to a cyber-attack has grown along with a spate of high-profile attacks. Consequently, cyber risk is now an embedded feature of the global risk landscape, not only as a privacy/network liability, which is where much of the publicity has arisen, but also as a peril affecting traditional insurance lines. Therefore, preventative and post-event remediation are gaining importance as shareholders, regulators and rating agencies are increasingly focused on enterprise risk management activities for cyber risks.