AI, Natural Catastrophes Identified As Most Pressing Emerging Risks

Swiss Re's SONAR report on 13 emerging risks aims to help businesses and insurers prepare for potential threats.
By: | June 14, 2024

Swiss Re’s annual SONAR report identifies natural catastrophes and artificial intelligence as the two emerging risks that could have the greatest impact on businesses and the insurance industry within the next three years.

The 2024 report highlights 13 emerging risk themes across demographic, political, technological, and business environments, organizing them according to their time horizon and the severity of their potential impact.

“We live in an age of poly-crisis, in an environment characterized by record-breaking temperatures, extreme weather events, war, terrorism and social discontent, not least due to increases in the cost-of-living. One crisis nourishes others, a chain reaction of greater uncertainty, risk accumulation and loss potential, both of human lives and of economic/financial value,” stated Patrick Raaflaub, group chief risk officer of Swiss Re, in the report.

Key Macro Trends Shaping the Future Risk Landscape

Political and Economic Environment: 

Geopolitical instability is occurring as a result of ongoing wars, causing shifts in government spending priorities away from areas like infrastructure, the report noted.

This instability, coupled with political tensions and infrastructure funding gaps, is increasing the risk of supply chain disruptions, according to the report. At the same time, persistent inflation continues to pressure households, businesses and government budgets worldwide, the report stated.

Demographic and Social Environment:

Health care systems are under strain due to rising costs and funding gaps, a situation exacerbated by an exodus of professionals to better-paying jobs, according to the report. This is occurring against a backdrop of rising demand for health care services as societies age, often outstripping supply.

Aging demographics in mature markets are also leading to growing imbalances between the productive population and dependents, Swiss Re noted. Social isolation and loneliness are being recognized as growing problems in terms of societal wellbeing, resulting in both poorer physical and mental health.

Technological and Natural Environment: 

Climate risks present an existential threat, with 2023 being the hottest year on record and climate change driving variations in natural hazard frequency and severity, the report stated.

The transition to a low-carbon economy, while necessary, is creating new risks related to competition for critical minerals, recycling challenges, and infrastructure network vulnerabilities. The vulnerability of operating systems to technology dependency is central to macro-trend risks. That includes cyber risk, with ongoing digital innovation generating more and also new exposures.

Competitive and Business Environment:

The insurance industry is undergoing a rapid transformation driven by digitalization, which continues to shape business operations at an accelerated pace, per the report. The advent of artificial intelligence (AI) presents a wide range of opportunities and challenges for insurers, including cyber risk and fraud, Swiss Re notes.

In the field of generative AI, new tools and updates offering enhanced capabilities are being released in quick succession. AI is influencing various risk categories, including cyber and fraud, as well as decision-making in compliance and regulation.

Emerging Risk Themes by line of Business

  • For Property & Specialty lines: Natural catastrophes can have far-reaching consequences that go beyond just broken infrastructure, with cascading effects that can impact various aspects of society and the economy.
  • For Casualty lines: The rapid advancement of AI brings with it unintended insurance impacts, and the industry can learn valuable lessons from the experience with “silent cyber” risks, Swiss Re noted.
  • For Life & Health lines: The underfunding of public health systems can have detrimental effects on morbidity and mortality rates, as well as on a country’s GDP, highlighting the importance of adequate investment in this crucial sector.
  • For Financial markets (including insurers’ assets): Social media platforms are increasingly democratizing financial information, which can lead to risky bets and potentially impact financial market stability, the report stated.

While some of these emerging risks may never materialize, others may form the basis for future risk pools, according to Swiss Re. Identifying and monitoring these risks is crucial for the insurance industry to stay ahead of potential challenges and opportunities, the reinsurer emphasized.

To view the full report, visit Swiss Re website.

The R&I Editorial Team can be reached at [email protected].

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