Turmoil in emerging markets, increased localisation of Internet networks within country borders and financial repression are some of the key risks identified in this year's Swiss Re SONAR report, published recently. Although aimed at the insurance sector the report contains useful information for all enterprise risk managers. The publication is based on the SONAR process, a crowdsourcing tool drawing on Swiss Re's internal risk management expertise to pick up early signals of what lies beyond the horizon.
The report offers insights into emerging risks, those newly developing or evolving risks whose potential impact and scope are not yet sufficiently taken into account. Among these, the report also highlights a ‘crisis of trust’ in institutions, the ‘legal and pricing risks of the sharing economy’ and technology-related topics, such as the rise of ‘precision medicine’ and ‘distributed energy generation’.
"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," says Patrick Raaflaub, Swiss Re's Group Chief Risk Officer. "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."
The identified risks are relevant to life and non-life insurance areas and are presented with the goal of helping industry players prepare for new scenarios by adapting their behaviours, market conduct and product portfolios.
Detecting early signals of looming threats allows for a proactive approach to risk mitigation and is an important step to help society as a whole to become more resilient.
The three top risks with the highest potential impact:
Emerging markets crisis 2.0: turmoil in emerging countries could hinder the market entry and the penetration strategies of global insurance companies and even result in higher underwriting losses, especially in property, personal and commercial lines, for example in the case of riots.
The great monetary experiment: the long-term costs of negative interest rates and unconventional monetary policies are still unknown, yet they might lead to a broader loss of confidence in the monetary system. Short-term benefits are limited as the policies are unlikely to boost economic growth.
Internet fragmentation: firewalls, special software to filter out unwanted information and isolated IT infrastructure detached from global networks: disconnected nets could soon become a reality. Their potential impact includes increased costs and disrupted business models for insurance companies and other businesses operating across borders.