Swiss Re has revealed the three biggest risks facing the insurance and reinsurance industry in their latest report.
In their new SONAR report, Swiss Re note that the three emerging risks with the highest potential impact are emerging market crisis, the great monetary experiment and internet fragmentation.
Turmoil in emerging markets, the increased localisation of internet networks within country borderers and financial repression may take the top three positions but insurance businesses need to be aware of a further 21 emerging risks such as the sharing economy, mass migration and FinTech risk.
Patrick Raaflaub Group chief risk officer of Swiss Re, said that businesses need to look to the future, as well as focusing on the risks of today, in a bid to secure their businesses.
"Risk management is not just about managing risks in the present. It is about anticipating future ones to make sure we will be in a position to deal with them," Raaflaub, said.
"These risks may only fully reveal themselves to future generations. That doesn't mean that we shouldn't act today to reduce uncertainty and alleviate their burden.
“It would be easy to ignore many of these risks and focus on the business that we already underwrite.
“But that is not an option – as an industry we need to help promote a resilient society and sustainable business. Therefore we need to understand these new developments and prepare for the risks of tomorrow.”
On the sharing economy, the report notes that established industry players must be wary of outside entrants, such as Australia-bound
Friendsurance, as they could see the face of the industry change.
“For insurers, the rise and increasing sophistication of the sharing economy raises questions regarding the appropriate form of coverage,” the SONAR report notes.
“The sharing economy has also reached the very foundations of insurance.
“So-called peer-to-peer insurance is gaining traction – a model that is similar to traditional mutual insurance, but takes it to another level by using new technology. Early entrants are Friendsurance in Germany and
Lemonade in the US. In contrast to other players in the sharing economy field, they have so far followed traditional insurance regulation without calling for new ‘sharing economy’ rules.
“Peer-to-peer insurance raises questions of adverse and self-selection, pricing and reserving adequacy, and its ability to cope with catastrophic events. The incentive to follow strict commercial imperatives may be curtailed by social conventions with a ‘friends’-based risk pool instead of a traditional pool of insureds.”
With a raft of emerging risks to contend with, the Swiss Re report stressed that the industry is presented with a host of opportunities to further develop across the globe.
“The topics highlighted in this report could also give rise to new opportunities,” the report concludes.
“Given the breadth of the risk landscape, possibilities for solutions are vast, and the insurance industry could and should expand its role of mitigating risks.
“By providing re/insurance for new products, our industry plays a vital role as innovation enabler while bringing its risk management expertise to the table to avoid losses from occurring in the first place.
“Working together and sharing knowledge across stakeholders can help the insurance industry to better prepare for and deal with emerging risks.”
