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Swiss Re Report Identifies 20 Emerging Risks

Medical Research-SF
June 14, 2017

The latest Swiss Re SONAR report identifies 20 emerging risks and 6 emerging trend spotlights affecting the insurance industry. Emerging risks are defined as newly developing or changing risks that are difficult to quantify and could have a major impact on society and industry.

Of the 20 emerging risks identified, some of 2017's key risks are reduced market access, regulatory fragmentation, the return of inflation, cloud risk accumulation, and emerging liability legislation for artificial intelligence. The publication is based on the SONAR process, a crowdsourcing tool designed to pick up early signals of what lies beyond the horizon.

Swiss Re's report offers insights into emerging risks and highlights a number of emerging trend spotlights. Emerging risks are newly developing or evolving risks that are difficult to quantify and sometimes not fully understood but potentially have an impact on the industry and society. Emerging trend spotlights examine early development, which may offer both opportunities and risks for the insurance industry in the future. Emerging trend spotlights in the 2017 report include aging in dignity, citizen science, data privacy, blue ocean economy, precision farming, and prudence with risk pools.

"Ignoring emerging risks is not an option, neither for political decision-makers, the insurance industry, nor society as a whole. The earlier we adapt to these changes, the better prepared we will be," says Patrick Raaflaub, Swiss Re's group chief risk officer.

"Sharing knowledge through a proactive risk dialogue across stakeholders can help the insurance industry create a pro-active and pre-emptive risk management culture that enables disciplined risk-taking. That is an important step to help society as a whole to become more resilient," Mr. Raaflaub adds.

The identified risks are relevant to life and nonlife insurance areas as well as asset management. They are presented with the goal of helping industry players prepare for new scenarios by adapting their behavior, market conduct, and product portfolios.

The report ranks each emerging topic by its overall impact. This is an indicator of the potential financial, reputational, and/or regulatory impact associated with an emerging risk topic. Each type of impact is assessed on a scale from high to low or significant stakeholder concern.

The six top risks with the highest potential impact are as follows.

Reduced market accessprotecting your own backyard: the use of regulation to control capital flows and encourage protectionism could eventually undermine the business models of international corporations.

Island solutionsregulatory fragmentation: increased fragmentation in regulation could undermine reinsurers' ability to support economic activity and act as stabilizers in the financial markets. In a fragmented regulatory world, there is also much less opportunity to efficiently pool risks.

The return of inflationthe effect on insurance business: After years of low inflation and even fears of deflation, we see signs of headline price increases here and there. Inflation can affect insurers' profitability, in particular on long-term liabilities (life, casualty). It can also have an adverse impact on asset management.

The perfect stormcloud risk accumulation: Cloud services have become widespread, for business and households alike. But as the cloud accumulates data sets and services on an ever-increasing scale, it also generates a variety of risks that may accumulate to a "perfect storm" (e.g., by a cyber attack or a power blackout).

The big dryinggrowing water stress: While the US Southwest is in an ongoing water crisis, similar situations can be found today and in the future around the worldfrom Southern Europe and the Mediterranean to Africa and parts of Asia and Latin America. The risks range from wildfires, competition for water among the energy and agricultural sectors to mass migration and wider conflict potentials.

Bugs on the marchunderestimated infectious diseases: the question is not whether deadly infectious diseases will appear but when and how society is prepared to cope with them. In an extreme scenario, each epidemic or pandemic has high relevance for life and health insurance and the financial markets.

Swiss Re SONAR: New Emerging Risks Insights 2017 is available for download. (Registration is required.)

For more information on a related topic, view "Risk Professionals Must Increase Their Understanding of Disruptive Technology and Its Risks."

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