Risk Management

Analyzing And Measuring Emerging Risks

New thinking on war, pandemic, climate, and yes, even crypto

SwissRe has released the 10th edition of its SONAR Emerging Risk report, in which it brings into focus the events impacting our daily economic lives and looks to evaluate risk foresight and awareness. Excerpts are presented below. Access the full report here.

As our world undergoes constant change, this gives rise to “emerging risks” – new or changing risks that are difficult to quantify and that can have a major impact on the insurance industry. Swiss Re identifies emerging risks by gathering input and feedback from underwriters, client managers, risk experts and others across the company, and also from external experts and research institutions. With the annual SONAR report, published since 2013, we aim to foster dialogue with all stakeholders to help insurers understand and manage emerging risks more effectively.

This year’s SONAR report features nine new emerging risk themes and five emerging trend spotlights. The emerging risk themes are potential new or changing risks, with both downside risks and upside potential for the insurance industry. The “Trend spotlight” items highlight contextual developments we deem relevant for the insurance sector, without necessarily referencing a specific risk.

The emerging risk themes outlined in the SONAR report are based on early signals collected over the course of a year. They do not reflect entire industry-wide thinking with respect to emerging risks, nor do they necessarily cover the full list of associated topics currently on Swiss Re’s radar screen. The themes have been categorized according to their estimated impact and our forecast for when they may materialize, and with respect to lines of business where we think the biggest exposures will lie. For all the risk themes, we flag where there have been topic-relevant mentions in previous SONAR reports. Some emerging risks presented in this year’s SONAR report may never materialize, while others may form the basis for future risk pools. Similarly, some of the trends depicted may lose importance, while others may play a growing role in shaping the future business environment.

We begin the SONAR report with an overview of the macro trends relevant to re/insurance markets and the world at large, as seen by Swiss Re. These trends and their grouping into demographic & social, political & economic, technological & natural and competitive & business themes serve as a backdrop and ordering structure for the subsequent exposition of this year’s report of emerging risk themes and trend spotlights. The appendix explains all terms & definitions used in the report. Per lines of business, the top emerging risk themes identified in this year’s edition are: for Property: “Thawing permafrost – accelerating climate, infrastructure and health hazards” for Casualty: “Legal tech – is AI rendering justice?” for Life & Health: “Eroding trust – new worries for public health and medical science” for Financial Markets (incl. insurers’ assets): “Challenges in construction – raw material shortages and price increases” for Operations (incl. regulatory changes): “Quantum computing – a threat before an opportunity

Macro Trends

Identifying and monitoring macro trends enhances understanding of the risk landscape of the future. Based on internal surveys and workshops, Swiss Re curates a set of macro trends deemed to be of high importance for insurance in the next decade. The macro trends portfolio is reviewed annually and informs strategic priorities and associated decision making, and the creation of solutions for emerging risk pools. Having conducted a thorough re-inspection of the selected trends in the immediate aftermath of the COVID-19 pandemic, the macro trends portfolio remains largely unchanged in 2022. The only exception is the macro trend “Low-yield environment & risk of inflation.” In light of present developments, it was adjusted to “Rising interest rates amid high inflation.” Below you will find the overview with all macro trends, followed by three overarching themes connecting this year’s SONAR topics, as well as descriptions for each macro trend.

Demographic And Social Environment

  • Growing middle class in high growth markets
  • Longevity & radical medical innovation
  • Mass migration & urbanisation
  • Changing workplace and talent gaps
  • Rising social inequality & unrest

Political And Economic Environment

  • Macroeconomic fragility
  • Challenged globalization
  • Geopolitical & economic instability
  • Rising interest rates amid structurally higher inflation risks
  • Infrastructure funding needs

Technological And Natural Environment

  • Addressing physical climate change risks
  • Rising importance of biodiversity and ecosystem services
  • Transition to a low carbon economy
  • Expansion of digital & cyber risk
  • Data as an asset
  • Digital products and processes
  • Disruptive digital technologies
  • Autonomous transportation & robotics

Competitive And Business Environment

  • Re/insurance value chain disaggregation and rise of alternative re/insurance providers
  • Consolidation of platforms as a business model through strategic partnerships
  • Regional champions going global
  • Increasing digital customer interaction
  • Increasingly litigious environment
  • Rising importance of Environmental, Social and Governance (ESG)