A fragmented Internet, continued experimentation with monetary policy and another round of economic crises in emerging markets top Swiss Re’s latest roundup of emerging risks to watch out for.
Beyond those top three, the reinsurance giant covers everything from human-induced earthquakes to the ever-increasing prevalence of neutraceuticals, and blockchain technology in its latest SONAR report.
Swiss Re Group Chief Risk Officer Patrick Raaflaud said it remains important for the industry to anticipate future risks and act accordingly. By doing so, Swiss Re said, both property/casualty and life insurers can adapt their behaviors, market conduct and product portfolios in order to proactively mitigate risk and help the market adjust to new realities.
“These risks may only fully reveal themselves to future generations,” Raaflaub said in prepared remarks. “That doesn’t mean that we shouldn’t act today to reduce uncertainty and alleviate their burden.”
Here are the top three risks with the greatest potential impact, in detail:
- Emerging markets crisis 2.0. Swiss Re sees global insurance companies potentially seeing big obstacles from turmoil in emerging countries. The trend, the reinsurer said, could produce bigger underwriting losses, particularly in property, personal and commercial lines (if riots and other turmoil hit).
- Continued unconventional monetary policy, or “the great monetary experiment.” This is a concern because governments and economies don’t yet know how negative interest rates and first-time monetary policies will help or hurt. Swiss Re said they could lead to a bigger loss of confidence in the monetary benefit and at the very least won’t boost economic growth.
- A fragmented Internet. Insurers and other companies that operate across borders could see increased costs and disrupted business models as firewalls, special software to filter out unwanted information and isolated IT infrastructure detach from global networks.
Among the other emerging risks Swiss Re identified:
Legal and pricing risks of the sharing economy. Swiss Re says traditional insurers could face pressure from new players (peer-to-peer insurers) that can reach new clients through a sharing economy situation. As well, insufficient loss experience could expose insurers to inadequate pricing models for hybrid risks in the sharing economy.
Crisis of trust. As citizens increasingly distrust governments, large corporations and tradional media, this could spill over to a distrust of insurance, which could hurt business. If customers are more hostile, then unwarranted claims could spike.
Mass migration. Global migration has become a concern due to instability in many places around the world. Swiss Re said it could have relatively minor impacts on insurers, such as the need to reassess risk exposure of buildings due to higher-than-expected occupancy from refugees.
Viral leaderless mobilization. Smartphones and social media enable the viral spreading of messages and calls to action that could result in public shaming or “flash mobs”—actions that produce protests, riots and negative publicity. Swiss Re said that this could lead to more property and business interruption losses, harm to companies’ reputations and their shareholders, and liability issues for manufacturers and distributors of smartphones and apps.
The future of work. With more artificial intelligence and robotics, a digitized industrial revolution will boost demand for more information, communication technology and related insurance coverage. But this trend could also create mass unemployment, which leaves a shrinking customer base for personal insurance and a smaller portfolio for employers’ liability. On the other hand, insurers could find new opportunities.
Precision medicine. This is a treatment approach for patients, also known as personalized medicine, that uses data from a person’s genes, environment and lifestyle to come up with a treatment. Swiss Re said, however, this could create liability problems with information management, data protection and transfer.
Neutraceuticals. These are products developed from food sources (such as dietary supplements) with claims that they have extra medical or health benefits beyond basic nutritional value. They generally lack FDA approval, and questions remain how they should be regulated, classified or covered by insurance. There is also a lack of data on health effects, which could affect insurance claims.
Gene drives. These are genetic systems that could help fix difficult biological problems, such as genetic modification of mosquitos to eliminate transmission of diseases such as malaria or the Zika virus. Swiss Re points out that environmental impacts aren’t clear, and also a commercial use of gene drives could lead to GMO-related losses.
Human cyborgs. The use of 3-D printing and further research could lead to biomechanitronic organs and prosthetic limbs that are fully functional, potentially giving humans strength and abilities they don’t ordinarily have. Swiss Re predicts that this would lead to a shift from personal liability to product liability, as well as more restrictive health coverage for basic insurance.
Beef. Consumption of processed meat can harm health in the long term, and meat production can harm the environment. Pressure to change meat consumption could hurt insurers that cover livestock farmers and lead to class action lawsuits against meat producers or sellers.
The FinTech risk landscape. Technology-driven financial services promote efficiency and lower costs/prices, but Swiss Re said that badly protected or poorly developed platforms would open the door to cyber risks. As well, snafus could lead to liability claims from consumers, savers and investors.
Blockchain risks. This is technology behind what Swiss Re refers to as the “bitcoin cryptocurrency” and enables ownership certification. It can be used to verify transactions, streamline processes and simplify verification, but Swiss Re said it could hurt underwriting and “the insurance value chain. It also could increase cyber risks, and poorly thought out regulation could open up the technology’s use for criminals.”
Phoney data. Big data could lead to phoney or impaired data, which could hurt insurance companies that use data for customers for various sensors and apps. Swiss Re said that phoney or impaired data for insurance modeling could result in mispriced risks, unexpected claims and a boom in insurance fraud.
Human-induced earthquakes. Swiss Re said that fracking-related earthquakes and other tremors caused by human intervention could lead to more class action lawsuits, creating a big risk for insurers and reinsurers when events trigger property/casualty-related claims.
Ocean pollution from microplastics. The increase of tiny pieces of plastics (facial scrubs, toothpaste) in the ocean from various consumer products could lead to more liability claims against microplastic manufacturers and related consumer products. Expect more recalls as well of fish/seafood products found to have plastic particles.
Source: Swiss Re