From electric scooters to zombie companies − emerging risks in 2021
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Medical experts talk about long-COVID – the lingering effects of the virus on the human body after the initial illness has passed. The same is true of the risk landscape, which has fundamentally shifted and will continue to feel the repercussions of the pandemic for long after the initial threat has subsided.
Longstanding issues and trends have been joined by a raft of new challenges over the past 18 months − rising inequality and widespread economic and long-term health concerns.
“The pandemic hasn’t created a new age of uncertainty, but it has highlighted the vulnerabilities and interdependence of societies around the globe,” says Martin Weymann, head of the Sustainability, Emerging & Political Risk Management team at Swiss Re. “This has shown us that it has become even more important for people, and insurers in particular, to understand the risks we now face."
Against this backdrop, Swiss Re Institute’s SONAR report highlights emerging risks and trends. Three key themes emerge from the report: the continuing effects of the pandemic; the unabated desire to make the world more sustainable through e.g. e-mobility and protection of biodiversity; and the human-machine interactions that are an increasing feature of daily life.
Restarting the economy from a different point
COVID-19 has reshaped economies and the health, wellbeing and priorities of society. The pandemic exacerbated existing inequalities, with many feeling the impact of rising unemployment and falling incomes. Analysis by the Pew Research Center shows the extent to which living standards have been affected, with the global middle class shrinking and many pushed into poverty.
As economic activity resumes, there are risks as plants and machinery restart after lying dormant for many months. Added to this, risk assessors will not have been able to access factories for some time, meaning an increase in missed check-ups, and in many cases maintenance and repair has been delayed. This creates very real and heightened risk: the chance of fires, explosions or spills at under-supervised oil refineries, mines or chemical plants is far greater.
A heightened business risk comes in the shape of “zombie” companies − businesses with unsustainably low productivity surviving only due to the current low-inflation environment which would have failed during the pandemic without government support. As this life support is withdrawn, these companies may go bankrupt, potentially setting in train another wave of unemployment.
Facing up to the long-term health burden
There are also unanswered questions about the long-term effects of the pandemic on health. Many medical procedures were delayed or cancelled, increasing the risk of high mortality as a result of undiagnosed cancers and other serious illnesses.
Mental health issues are also an area of growing concern. Like physical health, support services have been hard hit. And we have yet to see the full impact of widespread
lockdowns and increased isolation on people’s mental wellbeing. This could lead to increased sickness absence, which will impact small- and medium-sized companies most heavily.
“Back in 2007, we produced a publication which quite accurately described how a pandemic can be spread and the related health and mortality effects. But I think what was underestimated were some of the secondary effects that are mainly due to the hard lockdowns that governments imposed,” explains Weymann, who co-authored the SONAR report.
Yet there is also reason for hope. The unprecedented pace of innovation and collaboration that powered the development of vaccines and the rapid scaling up of medical equipment production, could provide a blueprint for our world to move faster in tackling future societal and environmental issues.
A greater focus on sustainability
A greener and more sustainable restart is high up the agenda for many companies and countries as they look to a post-pandemic recovery. This is in part driven by a greater awareness of the risks created by climate change as well as the importance to our economy of biodiversity and ecosystem services.
At a practical level, supporting biodiversity and protecting the natural world through, for instance, intact mangroves can mitigate the impacts of tropical storm surges. On climate change, the transition to a net-zero economy is gaining unprecedented momentum. And the recommendations of the Task Force on Climate-related Financial Disclosures are already being adopted and will create transparency on climate-related financial impacts and opportunities for both insurers and their clients.
“While there is new traction for biodiversity in the insurance industry, it has always been a challenge to give ecosystem services an actual price. Now central banks and regulators are looking at these ecosystem services and the economic value they provide,” says Weymann.
Within the broad scope of sustainability initiatives, short-distance mobility is a key area of focus and new risk. From electric scooters, bicycles and “hoverboards” through to autonomous vehicles cruising through our urban centres, the emergence of new products and pay-per-use models, alongside evolving regulations, are adding to risks already quantified. For example, there will be data and cyber security risks for people hiring an electric car or scooter. As developments like urban air mobility begin to be rolled out in our cities, it is vital that the market is ready to pay the true cost of insuring the risks associated with it.
“The insurance industry wants to help reduce the hinderances to market implementation,” says Weymann. “But, at the same time, the market needs to be prepared to pay adequate prices so that the insurance industry can pay claims and maintain the development which is needed for modelling those risks. We need to be resilient ourselves to make the world more resilient.”
Embracing a technology-led world
Over millennia, humans have become used to taking advice from people they respect. Increasingly, digital devices are taking on the role of the trusted friend, recommending behaviours and nudging individuals to change the way they live.
But, there are undoubtedly both risks and rewards in embracing digital technology. And there are few hard and fast rules that can be drawn up governing the wide gamut of applications for new and emerging tech.
For example, brain computer interface devices could be very helpful in detecting the early signs of seizure and warning an individual to take medication. But are all the ethical implications of this technology and the associated risks fully understood?
Bots are another example. In the insurance industry, digital engagement using bots can be applied to bring down the costs of insurance policies, making insurance accessible to more people.
“The question for any of the players in the digital economy is what is acceptable fair behaviour regarding the consumer interactions?” Weymann asks. “When bots are causing the consumer to do something, there is a very thin line between forcing somebody and helping somebody. These topics need to be openly discussed.”
It is important to remember that the risk landscape is always evolving. While the pandemic may have caused some rapid shifts, it has also demonstrated the fragility and
interdependence of society and the risks we face.
Ultimately, individuals, insurers and companies should not be paralysed by facing up to these new risks. Instead, they should look for opportunities to manage risk better for the benefit of everyone in society.