Drought and cloud computing would not necessarily go together, but they do in the world of insurance risk. Swiss Re sees both as the greatest risks property/casualty insurers will face in the coming years.

The carrier’s latest SONAR Emerging Risk Insights report sees drought risks as the biggest worry to come for the property side, due to continued and increasing related losses in agriculture, energy and forestry. Swiss Re views cloud computing, Swiss Re as the most significant casualty risk in future years because of its increasing use by both businesses and consumers, and the corresponding growth in cyberattacks.

Drought Causes Multiple Economic Risks

There will be more frequent drought conditions before the end of the 21st century in the Mediterranean, South Africa and parts of the Americas, all regions where drought-related problems are already rising, according to data cited in the report. Swiss Re said the risks that drought brings and will bring are widespread.

Drought risks can be economic, with “water scarcity, drought and wildfires already leading to significant economic losses today,” Swiss Re said in its report. “As population and economic values continue to grow in affected areas, loss potential swill increase as well.”

Digging deeper, drought can lead to heightened competition for the reduced water resources that are left, which can impact agriculture but also the beverage, energy and mining industries, Swiss Re said.

There’s also the potential that drought can reduce what forests grow, and also add to fuel for more larger wildfires. As Swiss Re notes, the risks of wildfires affecting a large area remain, and this problem will only increase.

As Swiss Re explains, drought can also reduce food security in unstable parts of the world, making conflicts and migration worse, which themselves have their own risks.

Because water basins are also shared between countries, drought can reduce these resources and lead to cross-border conflict and risk, Swiss Re said.

Drought-induced subsidence, meanwhile, can lead to property damage from cracks in buildings and other infrastructure.

As Cloud Demand Grows, Risks Mushroom

Demand for cloud services by businesses and consumers alike has accelerated and become far-reaching. As Swiss Re points out, this has a plus side, because data volumes and the ability to access cloud-stored data from different places has accelerated its losses, and made it cheaper.

But with the increased use of cloud storage and computing services, related risks are on the rise.

If cloud services are knocked out of commission by a technical failure, loss of power or a cyberattack, “the financial loss could be immense,” the report notes.

Consider – Amazon Web Services provides significant service as a data storage provider. Swiss Re argues that if its service went down for 24 hours, then all of its sub-providers and their clients face a big business interruption. Cloud dysfunction can disable web pages and business applications, and cut off access to business data. That also hobbles business processes, Swiss Re said, “and the accumulated loss could be considerable.”

Since these breakdowns can also harm operations and supply chains, “the longer the interruption persists, the wider-ranging the effects will be,” Swiss Re said in its report.

What’s more, “the accumulative property of the super cloud consequently makes it a preferred target for hackers and cyber war strikes” the report added.

Specifically, Swiss Re sees cloud problems or breakdowns particularly triggering business interruption and contingent business interruption coverage and liability for data loss and privacy issues.

But confusing and uncertain regulatory conditions for cloud use can also heighten risks, something that can harm global companies, though losses would vary depending on “location, concentration and redundancies of clouds-of-clouds service,” Swiss Re said.

Robots, Infectious Disease and Fake News

Swiss Re’s report also touches on a slew of emerging risks, including robots, hijacked money and infectious disease.

Another big emerging risk stems from the “growing distrust in established political instructions,” which is spreading to corporations. Swiss Re said this could particularly impact the insurance industry, “whose business model is highly dependent on clients’ trust.”

There’s also this emerging risk: the spread of overly biased and fake news.”

“The rapid spread of overly biased and fake news poses a major reputational risk and communication challenge to insurance companies in high-profile claims situations,” Swiss Re noted.

 

Source: Swiss Re