Spotlight on emerging risks

The Chief Risk Officer Assembly, a joint initiative between Swiss Re, the Geneva Association and the CRO Forum, provides a unique global platform for re/insurance CROs. With emerging risk management issues high on the 2011 agenda, Reto Schneider, Swiss Re’s Head of Emerging Risk Management, provides Swiss Re's perspective on this topic.

How does Swiss Re define emerging risks?

For us, they are new or already known risks which are difficult to assess. I prefer a definition which focuses on faint, initial signals that may or may not further develop into real emerging risks. We investigate these risks because of their potential impact on our business and that of our clients.

Where do we derive our insights into these risks?

We derive our insights from a variety of sources. First, we successfully manage an internal SONAR system on the company’s social network platform, Ourspace. Swiss Re employees are invited to post their notions on this platform. We then scan, filter and prioritise these. In addition to this in-house expert system, we also work with think tanks, universities and institutions such as the World Economic Forum. Other sources of inspiration for us are the Emerging Risk initiatives launched by the CRO Forum or the European project dedicated to Emerging Risk Governance (iNTegRisk).

Do emerging risks pose a real threat in a globalised economy?

When I look at the world, and in particular at our developed world, we could argue that life was never as safe as it is today. But in a globalised economy, our supply chains – driven as they are by Information Technology – have made our society more vulnerable to system failures, more vulnerable because we are more interconnected, and failures spread quickly. A case in point has been the ongoing financial crisis which has highlighted these interdependencies quite dramatically. We are also confronted with highly complex systems, that may no longer be controllable (to the extent we would wish) and with outcomes that are hard to predict.

Are governments and societies reacting in smart ways to address emerging risks?

In my view, governments react rather than act. They are driven by the need to find solutions to short-term challenges. Given the current economic climate, the quality of foresight and planning based on longer-term planning are not really en vogue. I assume that the current uncertainties and speculation about our economic destiny pose a serious threat.

What kind of contribution can the insurance industry make in the mitigation of these risks?

A very traditional role of the insurance industry is to provide risk capital to smooth out fluctuations. In times of high uncertainties, insurance companies not only help to stabilise the overall system. They can also protect individuals’ economic well-being. In times of uncertainty, defensive strategies might become more important. On the other hand, the insurance industry can also help small- and medium-sized companies make the investments in innovation so important for the long-term health of the economy. The provision of this sort of protection in times of austerity has arguably become even more important. However one challenge remains: Is the necessary insurance cover going to remain affordable? This is a challenge that needs to be addressed by all our stakeholders.

Published 16 November 2011

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