The new emerging risks

Every year, a wide range of new risks emerges. De-globalization, monetary experimentation, pandemics, LED lighting threats, genetic engineering, antibiotic resistance are among the so many new threats that mankind is bound to face over the coming years.

Photo credit: Gerd AltmannConstantly evolving, these future challenges are however not adequately taken into account. Identifying, quantifying and preventing these hazards, the consequences of which could be disastrous for society and the economy, have consequently proved to be necessary.

Through its "Sonar 2015" annual study, Swiss Re established a list of 21 potential new risks, which are likely to attract the interest of insurers. These hazards are listed according to the impact level (high, medium or low) and based on the possible occurrence date (between 0 and 3 years or more than three years).

High impact risks

The study has identified four new risks whose impact would be high.

De-globalization, accounted for by the intensification of political conflicts in the world. It is in Eastern Europe, the Middle East, Asia and Africa that tensions are running high, triggering most of the sanctions, embargoes and restrictive measures. This situation has resulted in the deterioration of the economic environment in these regions with the suspension of capital flows and goods. All the economic and financial environment would thus be negatively affected; even insurers would be scrambling to manage the invested assets.

Large-scale natural catastrophes continue to generate enormous damage, with the atmospheric river phenomenon(1) being behind the resurgence of these major events. While this phenomenon continues to be disregarded and underestimated, it is likely to cause considerable damage such as floods or volcanic eruptions.

(1) A high-altitude air current responsible for the formation of extra-tropical storms

Experiments at the monetary level. Many mature markets (most European countries and Japan) are currently experiencing low economic growth. They are also facing traditional monetary measures that have reached their limits. Governments are therefore moving towards more radical measures with uncertain consequences.

Photo credit: Petr Kratochvil

In the short term, these new monetary policies would favor the formation of bubbles on some asset prices and the increase of economic inequality. Record low interest rates would jeopardize the very existence of some life insurers.

In the long term, the repercussions are so far unknown.

Internet of Things. The almost permanent interconnection between the devices is not without consequences for the security of networks and data. Malicious attacks, cybercrime, data theft, etc. can cause serious damage.

New technologies are now rooted in our societies: cyber activity has become so widespread that it has become unavoidable. Some specialists, who do not hesitate to qualify Internet as the sixth continent, have stated that the amount of uploaded data every six months accounts for all elements introduced on the website since the history of mankind.

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The study by Swiss Re has estimated that by 2025, a four-member family could be in possession of more than 100 connected devices. These giant-leap breakthroughs cannot however be accomplished without danger. This emerging risk, which has now become a source of growing concern for both companies and insurers, is currently under the spotlight.

Moderate impact risks

Out of the 21 risks listed in 2015, the Sonar study has identified 11 other hazards which could have a moderate impact. Drought in Brazil, lifestyle drugs, remote maintenance of machines, the increased risks of pandemics, forest fires, the sinking of large coastal cities, genetic manipulation, the challenges in renewable energy, antibiotic resistance, aging infrastructure and fracking waste (hydraulic fracturing to extract shale gas).

Low impact risks

There are six risks whose potential of occurrence is low. Mismanagement of fossil fuels and the dangers of LED lighting could have negative effects in the next three years. The office of the future, the importance of air traffic, the impact of chemicals on the environment and the shortage of raw materials are the hazards that could become a reality in the more distant future (> 3 years).

Evolution of high impact risks: 2014-2015
2014
emerging risks
Possible date of occurrence2015
emerging risks
Possible date of occurrence
Cloud computing
0-3 yearsDe-globalization0-3 years
Contagious emerging market crisis
0-3 yearsNatural catastrophes0-3 years
Euro zone leading to deflation
0-3 yearsMonetary experimentation0-3 years
Short-termism of macro-policy measures
0-3 yearsInternet of Things>3 years
Air pollution
>3 years--

Source: Sonar 2015, Sonar 2014, Swiss Re

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