Industry Issues | ERM & Emerging Risks

Swiss Re 2018 SONAR Report

Emerging Risks - Global Risks

Swiss Re's 2018 SONAR report examines the emerging risks the re/insurance industry and society are facing. The report features 18 emerging risk themes and 7 emerging trends.

Emerging geopolitical risks, the re-emergence of asbestos and risks from new technologies such as cyber, biased algorithms, and the erosion of risk diversification pose the largest challenges, according to Swiss Re. The report highlights other risks in the health and environmental area, such as people sleeping less and issues around environmental liability.

The 2018 SONAR Report's top five risks with the highest potential impact are:

Emerging geopolitical risk: A new multi-polar world is evolving in the geopolitical landscape as power drifts to Asia, democratic influences decline and the relevance of global governance institutions erodes. Possible turmoil in financial markets and possible erosion of legal rules could threaten the ability to run global businesses.

The erosion of risk diversification: Broad diversification and the free flow of capital are key to run a global re/insurance business. National protectionism and regulatory fragmentation are jeopardizing the benefits of international diversification.

Asbestos losses are now USD 100 billion and counting: Not all countries have banned asbestos. The UN estimates that one third of the people living in Europe are potentially exposed to asbestos at work or in the environment.

Cyber risks: Some flaws and vulnerabilities in hardware and software may remain undetected for a long time. These dormant threats can have a very long tail risk.

Algorithms remain opaque, biased and misled: An increasing number of business processes are driven by algorithms. Often, algorithms are portrayed as being objective, without human bias. But algorithmic applications are not infallible, they base their actions on human judgement as well. Discriminatory bias may also translate into defective modelling and prediction, bringing a two-fold risk to insurance and other industries.

Swiss Re views "emerging risks" as newly developing or evolving risks that are difficult to quantify, but potentially have a significant impact on the industry and society. Emerging trend spotlights examine early development, which may offer both opportunities and risks for the insurance industry in the future.

Swiss Re SONAR Report: 18 New Emerging Risks and Their Potential Impact Over time

Emerging risk themes and the most affected business areas

0 - 3 Years

Most Affected Business Area

Potential Impact

Emerging geopolitcal risk

Financial markets; Operations (legal and regulatory)

High

Erosion of risk diversification

Operations (legal and regulatory)

High

Combustible cladding

Property; Casualty

Medium

Environmental liability and insurance

Casualty

Medium

Tech hypes, fails, and fraud

Operations (legal and regulatory)

Low

Cryptocurrency

Casualty

Low

Colliding ships

Property; Casualty

Low

Business of counterfeit medicine

Life & Health

Low

> 3 Years

Most Affected Business Area

Potential Impact

Asbestos

Casualty; Life & Health

High

Cyber risks

Casualty

High

Algorithms

Operations (legal and regulatory); Casualty

High

Sleep deprivation

Life & Health; Casualty

Medium

Ecosytem services

Financial markets; Casualty

Medium

Digitization of human skills

Casualty; Operations (legal and regulatory)

Medium

Monetary policy regimes

Financial markets

Medium

Plastics

Life & Health; Casualty

Low

Artificial organs

Life & Health

Low

Tatoos

Life & Health

Low

Swiss Re Trend Spotlights include: 

  • Move towards precision medicine
  • Market conduct and ethics in the age of big data
  • Infrastructure in transition
  • VR and AR tech gaining traction
  • Supplies of metals and minerals
  • Insurtech in Asia
  • The risks of heavy government debt