| Pictured above (left to right)
Professor of Integrative Risk Management and Economics at the Swiss Federal Institute of Technology (ETH). This professorship is supported by Swiss Re.
Head of Swiss Re’s Emerging Risk Management team. PhD in immunology from the Swiss Federal Institute of Technology (ETH).
|Sir John Scarlett
Former Chief of the British Secret Intelligence Service (SIS or MI6) from 2004 to 2009. He is a member of the Swiss Re Advisory Panel*.
Emerging risks are a huge challenge for society. By improving risk understanding and working in public-private partnerships, the insurance industry provides innovative solutions that enable continued social and economic development.
Sir John Scarlett, Professor Antoine Bommier and Reto Schneider, what are emerging risks and why are they so challenging?
Sir John Scarlett: Emerging risks are risks not seen before, or ones that develop in unexpected ways. In geopolitics, these risks emerge from technology and economic change. Ideas can be transmitted more widely and faster than before; technology has turned extremist violence from a local to a global activity very quickly. Shifts in economic power, especially over resources like energy, will have global security implications.
Antoine Bommier: Emerging risks also include those that change their nature. Natural catastrophes have become more significant as populations concentrate in big cities. Risks are now of a different magnitude, and because the world is increasingly connected, they can propagate very quickly.
Reto Schneider: Risks can emerge suddenly or slowly and be difficult to quantify. Society’s vulnerability to cyberattacks; the risks associated with smart grids and renewable energies; nanotechnology, already used in many products without much knowledge of its potential long-term effects – these all qualify as emerging risks.
How does society respond to emerging risks?
Reto Schneider: Usually our reaction is to ramp up controls: 9/11 produced a widespread increase in security procedures and consequent erosion of trust. This has a price: It slows down business and increases administrative burdens. Rather than just increasing controls, we need to apply active risk management to adapt our response to changing overall conditions.
Sir John Scarlett: Some governments do use risk management techniques to identify and prioritise risks, but find it hard to turn assessment into meaningful policy. That said, they do allocate significant resources to understanding the risks they face – good information and analysis is essential to serious mitigation.
Antoine Bommier: We need better risk understanding: this is where private companies and governments can work together. Emerging risks like climate change and the ageing population are a joint responsibility, with risk shared between individuals, governments and companies. Insurance is part of the solution, but developing that solution requires cooperation.
Reto Schneider: Swiss Re has worked with the Mexican government and the World Bank, with governments of Caribbean nations, and recently with the US State of Alabama to develop insurance products that release funds quickly after a natural catastrophe, so that the emergency response is not delayed. We have created similarly innovative structures to protect farmers in developing countries from weather losses. When it comes to an ageing population, our longevity data and expertise in structuring capital market solutions can help unlock new sources of funding. Insurance and reinsurance definitely have a vital role to play.
What new approaches do emerging risks require?
Antoine Bommier: We need to recognise the interconnectivity between different risks, a global approach where we analyse different risks at the same time and trace their interactions.
Reto Schneider: There also needs to be a readiness to act – to start risk mitigation. Managing emerging risk is basically about good change management.
Are there positives in emerging risks?
Sir John Scarlett: Many emerging risks arise from changes in the global economy that are fundamentally positive, lifting millions of people out of poverty and improving health. The future is unpredictable: that can also mean unexpected good things – such as technology to improve energy supply prospects.
Reto Schneider: I’m very optimistic. Insurance has always enabled and supported technological and societal innovation: If we understand risk better, we can reduce uncertainty and open up new fields for risk transfer solutions, making societies more resilient. That’s the positive twist in emerging risks.
*Swiss Re Advisory Panel
The Swiss Re Advisory Panel is an external consulting body to Swiss Re senior management as well as to the Board of Directors. The Advisory Panel consists of leading public figures from across the world, specialising in the realms of science, politics, economics and law. The Panel meets twice a year to discuss major global trends and events, and how they might affect the insurance and reinsurance industry and the wider financial sector. The Advisory Panel is managed by the Swiss Re Centre for Global Dialogue, the premier conference facility of Swiss Re, dedicated to the exploration of global insurance and risk issues.
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