According to Swiss Re, emerging risks are “newly developing or changing risks that are difficult to quantify and could have a major impact on society and industry”. Hannover Re defines emerging risks as “new or future risks whose hazard potential is not yet reliably known and whose implications are difficult to assess”. Munich Re operates a risk radar, whilst Swiss Re has developed its SONAR (systematic observation of notions associated with risk).

The World Economic Forum looks at emerging risks as global risks and distinguishes between technological, crystalizing and aggravating risks. Technological risks are the result of technological change and innovation. Crystalizing risks are basically new risks that operate by and large outside the boundaries of current knowledge. Aggravating risks are known risks which are – because of their global dimension – difficult to measure. Emerging risks can have different origins: political decisions or events, operations of undertakings, socio-economic changes, financial developments, climatic changes, new technology, health related developments, regulation, casualty catastrophes (manmade disasters).

Although it is by definition impossible to list all emerging risks, the following survey produced by the World Economic Forum, which identifies a number of risks categories may be of interest:

- Economic: fiscal crises in key economies; failure of a major financial mechanism or institution; liquidity crises; structurally high unemployment/underemployment; oil price shock to the global economy; failure/shortfall of critical infrastructure; decline of importance of the US dollar as a major currency;

- Environmental: greater incidence of extreme weather events; greater incidence of natural catastrophes; greater incidence of manmade environmental catastrophes; major biodiversity loss and ecosystem collapse; water crises; failure of climate change mitigation and adaptation;

- Geopolitical: global governance failure; political collapse of a nation of geopolitical importance; increasing corruption; major escalation in organised crime and illicit trade; large-scale terrorist attacks; deployment of weapons of mass destruction; violent inter-state conflict with regional consequences; escalation of economic and resource nationalization;

- Societal: food crises; pandemic outbreak; unmanageable burden of chronic disease; severe income disparity; antibiotic-resistant bacteria; mismanaged urbanization; profound political and social instability;

- Technological: breakdown of critical information infrastructure and networks; escalation in large-scale cyber-attacks; massive incident of data fraud/theft.

There is no doubt that emerging risks can have a major impact on individuals and undertakings. The question is how the (re) insurance industry, which is by nature a professional manager of risks, is dealing with emerging risks.

The fourth meeting of the Karel’s Club will look at emerging risks and their insurability from different angles, benefiting from the input of a number of key experts in the field. The discussion will focus on issues such as:

  • How does prudential regulation deal with emerging risks? Does it facilitate or make it more difficult to find insurance solutions for emerging risks? How should a risk based solvency regime deal with emerging risks?
  • Is the insurance industry ready to provide solutions for the insurance of emerging risks? What are the pre-conditions and the limitations?
  • Do reinsurers have a specific role to play in covering emerging risks? Do they make their insights available to the outside world? Is there sufficient capital available in the market? Is there a way to increase the insurance coverage of the damages caused by natural catastrophes?
  • Is it possible to find a solution that can assist undertakings in identifying emerging risks so as to prevent or mitigate the potential impact of those risks? Would a scoreboard be helpful in this respect?
  • Are (re) insurers underestimating the impact of emerging risks? How are emerging risks dealt with in internal models?
  • How do CRO’s look at emerging risks? Do they operate with a scoreboard? How does a CRO of an insurance undertaking deal with emerging risks for the insurance undertaking?
  • How do risk managers in industrial undertakings deal with emerging risks? Are there enough insurance solutions? Is the insurance industry helpful in finding insurance solutions? Do they find these solutions rather with brokers?
  • How are emerging risks dealt with in financial statements? Can they be properly measured? Are auditors looking systematically at emerging risks when they examine the financial statements of undertakings? What is the impact of insurance on the measurement of emerging risks in financial statements?