Guy Carpenter has named cyber risk, climate change and space risk as the three main emerging risks that are facing the reinsurance sector in its latest report.
The report, Tomorrow Never Knows, seeks to identify pressing emerging risks confronting the sectors, as well as analyse their implications on businesses and reinsurers.
David Flandro, global head of business intelligence at Guy Carpenter, said: "It is critical that reinsurers are prepared to anticipate and react to a rapidly-changing and uncertain risk landscape."
"We are observing the rise of many new risks as technological, economic and scientific advancements are made, meaning there is often precious little historical data available for modelers and underwriters to utilise. Only by analysing and seeking to better understand these risks can we mitigate the element of surprise posed by emerging risks and identify potential growth opportunities."
Cyber risk
Rapidly developing computer technology and the evolution of cyber risks presents one of the biggest challenges to the reinsurance sector.
Liabilities from cyber attacks and threats to the data security of cloud computing and social media have become significant emerging risks for carriers.
Firms may also be vulnerable to risks to their supply chain as a result of cyber threats, as technology has become a critical enabler of a supply chain’s operations.
According to the report, technology failure and cyber attacks represent a greater threat to most organisations than adverse weather, fire and social unrest combined. Given the growing loss potential from supply-chain risks, companies need to ensure they understand their supply chains and offer all data to their insurers.
Climate change risk
Climate change and global warming is a growing area of concern for the reinsurance sector.
The Intergovernmental Panel on Climate Change (IPCC)—a United Nations body for the assessment of climate change—has concluded that global warming over the last 50 years cannot be explained without "external radiative forcing."
The most pervasive hazard of global warming is coastal flooding. . According to the IPCC, a sea-level rise of at least 25 to 50 centimeters is expected by the end of the century.
Global warming is also impacting drought and wildfire patterns around the world, according to the IPCC. Areas that see diminished precipitation will face water shortages, while other areas that are supplied from glacial sources will face the same problem to an even greater severity.
Space risk
Space debris and solar storm activity, the two primary risks that emanate from space, have the potential to cause disruption and trigger substantial losses for reinsurers.
The most serious threat to high-value satellites and space infrastructures in the Earth’s orbit today is the risk of collision with other satellites or space debris.
As more satellites are sent into the Earth’s orbit to provide services and technology the area is becoming increasingly cluttered.
While the cost of insuring a satellite during launch has traditionally been higher than the cost to cover its life in orbit, this is likely to change as underwriters become increasingly aware of increased collision risk.
Solar weather is another space-related risk that has the potential to cause huge disruption to infrastructure and businesses
Major solar disturbances have the potential to cause significant losses as they can severely disrupt electricity supply, cause satellite damage and trigger GPS signal disturbance.
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