Navigating Tomorrow: Preparing For the Future Risks on Our Radar

By: Lucy Pilko | January 22, 2025

Lucy Pilko leads AXA XL’s insurance business throughout the US, Canada, and Bermuda. She joined AXA XL in October 2023 from Boston Consulting Group (BCG). She was a Managing Director & Senior Partner in the New York office and led BCG’s North American Insurance Practice. Lucy brings over 20 years of consulting experience with particular focus on growth strategy, operating model and transformation for Insurance carriers and brokerage. She has worked closely with leaders from nearly all of the region’s major carriers and broking houses, helping them solve problems and uncover opportunities. Prior to BCG, Lucy was employed at Marsh McLennan and Bain Capital. Lucy has a BS in Industrial Engineering from Stanford University, and an MBA with High Distinction from the Harvard Business School, where she was recognized as a Baker Scholar.

No one likes to be caught off guard, especially those of us in the risk management industry. Effective risk management requires identifying, assessing, and mitigating potential risks that could impact our organizations before they actually do. In today’s fast-changing environment, that means keeping an eye on emerging risks is more important than ever and that is the motivation driving our annual survey, the AXA Future Risks Report, now in its 11th year.

Each year, the AXA Future Risk report examines emerging risks and trends that could impact organizations and society as a whole. The report is based on responses from over 23,000 individuals across Europe, America, Africa, and Asia-Pacific & Middle East. We asked 3,000 risk professional experts from 50 countries and a representative sample of 20,000 individuals from 15 countries to rank their top 10 emerging risks.

The survey’s 2024 findings are quite consistent with previous years. Climate change, geopolitical instability, and cyber security risks topped the list globally. And unsurprisingly, but a change, risks associated with AI and Big Data have climbed rapidly up on our list in the last few years.

Also interesting is how the perception of emerging risks differs across the globe and how our perceptions change, or don’t change, over time. In the Americas, for instance, while climate change was still on top, cyber security risk was a bigger concern compared to our global list, followed by AI and Big Data. Geopolitical instability slipped to fourth amongst North American respondents.

How risks are perceived influences which risks are prioritized. Risk perceptions shape our decision-making processes and guide risk management investments and strategies. From my perspective leading an insurance operation in the Americas, risk perceptions in my region also drives our direction in delivering products and services to help our clients address these top concerns.

We’re consistent on climate change

In 2024, climate change was the top issue across the board, among risk professionals and the general public, no matter where they live. From an Americas perspective, it’s clear why. In 2024, more than 61,000 wildfires burned 8.8 million acres according to the National Interagency Fire Center (NIFC). And 2025 kicked off with devastating fires in the greater Los Angeles (that are still persisting as I write this column). Total damage and economic loss are expected to far exceed previous records.

Let’s not forget we also saw another record-breaking Atlantic hurricane season. This was the ninth consecutive season with above-average hurricane activity. A big takeaway from 2024 season was how quickly a storm’s impact could extend beyond its size or direct path, impacting coastal areas but also inland communities, like those in Western North Carolina. Another interesting observation from this year’s hurricane season is that we can have two similar hurricanes, like Milton and Helene (at least from an intensity and landfall location perspective) but actually be looking at two different perils. While Helene was a major flood event, Milton’s damage was from wind.

As a result of climate change risks, more frequent and severe hurricanes, wildfire, heatwaves, drought conditions, coastal and river flooding are also what we’ll see in the future. We’ll need to be prepared for them.

Fortunately, innovative technologies and tools, including early warning systems, data analytics and advance predictive modeling, are available to aid in monitoring, predicting, and mitigating the impacts of extreme weather events. Knowing the urgency that risk professionals and the public places on climate risks, insurers are developing new insurance products that specifically address climate risks, such as parametric insurance, and are providing more services to help businesses boost their resiliency by retrofitting buildings to withstand extreme weather, creating more flood defenses, or implementing fire-resistant landscaping.

Cyber risks keep making headlines

While climate change concerns have been consistent globally, cyber risk has bounced around the top three positions of our list. As mentioned, in the Americas, it ranked second, pushing geopolitical risk to number four.

We are increasingly dependent on digital services for banking, healthcare, shopping, and even social interactions. When something disrupts our digital world, we feel it. Consider Change Healthcare’s cyberattack early in 2024. It impacted 100 million Americans.

Cyber insurers, like AXA XL, continue to emphasize the importance of robust cybersecurity measures to mitigate risks. We’re seeing how clients who invest in strengthening cybersecurity protocols not only reduce the likelihood of a cyber event but also experience faster recovery times after an incident. Through partnerships with cybersecurity experts, we’re helping clients keep pace with today’s cyber threats and whatever the future may bring.

Getting our heads around AI risks quickly

Another big difference on our Americas Future Risk list was Artificial Intelligence and Big Data’s first-time position as a top-three risk. Globally, AI and Big Data took the fourth spot in 2024 and 2023, after not even appearing on our Top 10 list in 2022. Since 2022, we’ve seen the introduction and adoption of (Gen)AI tools like Microsoft Pilot, ChatGPT and a significant level of experimentation across North American clients in identifying and deploying use cases in their businesses. And the conversation around data usage and responsible AI is happening in the board room and on the front-page of the news.

AI is transforming industries and creating efficiencies. It comes with a unique set of risks and uncertainties. Our report specifically called out AI-generated misinformation and disinformation as a rising concern.

For insurers, it is important to gain a deeper understanding of how AI impacts our clients. It’s still so new. The potential risks are diverse, and still not fully understood. But through data collection and scenario development, we’ll look to understand the transformative effects of AI implementation and how insurance or other risk management strategies can help mitigate these risks. Given the ambiguity and rapid evolution of the technology and legal landscape, AI-related requires a new level of partnership between insureds, brokers, and carriers, like AXA XL. We’re certainly here for it.

Partnering for preparedness

Another valuable insight from our survey focuses on the role insurers can play in helping clients address these emerging risks. Our survey asked respondents about their main expectations of insurers in relation to future risks. The top three answers were risk management and transfer for innovative solutions (74%), knowledge sharing and education on risks (71%) and support in prevention and resilience building (63%).

It’s encouraging that clients acknowledge the vital role insurers play. However, we hope to see their expectations climb in insurers’ ability to assist in prevention and resilience building as we can offer substantial support.

Through in-house risk consulting services and partnership with external resources, we’re assisting organizations strengthen their prevention and mitigation programs. Through these collaborations, clients can implement proactive measures – from safety audits to employee training to cybersecurity tabletop drills – all which can give a big lift to preparedness efforts.

Insurers possess extensive data and insights about emerging risks across industries. Businesses can gain valuable information from their insurers about trends, potential threats, and best risk management practices, including tailored risk assessments and analytics to understand their unique risk profiles. Ongoing communication and feedback between businesses and their insurers encourages continuous improvement. Businesses can share their experiences and observations regarding emerging risks, helping insurers refine their offerings and develop new solutions. It’s a win-win for all.

It may be hard to consider the risks that we discussed here as “future risks” when we are dealing with them here and now. However, as climate change accelerates and our reliance on technology deepens, these risks will evolve and pose ongoing challenges in the years to come. Strong partnership will empower us all to be better prepared for whatever lies ahead. &

Vermont’s Future Is Golden

Challenging market conditions are driving insureds to captives. Vermont offers a reliable domicile.

By: State of Vermont | November 21, 2024

Hard markets in commercial insurance lines have been a problem for years now. Many lines don’t show signs of softening, though some, like cyber, have ebbed over the past few years.

High claims volumes and costs have caused carriers to tighten terms and conditions, introduce new exclusions and increase premiums. A variety of different risks are included in this market tightening, and it’s affecting both public and private companies.

As Sandy Bigglestone, deputy commissioner for the State of Vermont’s captive insurance division, explained, schools, churches and other nonprofits are contending carriers are “excluding sexual abuse and molestation from coverage for a lot of these types of entities. These organizations understand the risk and the public needs to have confidence the organizations are addressing the risks, so they must have the coverage.”

Though many commercial lines are affected, property has perhaps been hit the hardest. Increased claims, inaccurate property valuations and other challenges have caused insurers to tighten their books in recent years. 2024’s spate of hurricanes will likely make matters worse.

“There continues to be challenges in the commercial market,” Bigglestone said. “Some companies are coming to us with risks that they say they’ve been self-insuring on their balance sheet, and why not transfer that to a captive to receive greater benefits?”

Consistency and Stability

Sandy Bigglestone, Deputy Commissioner for the State of Vermont’s Captive Insurance Division

With the commercial insurance market so unstable, companies are turning to captives to house their exposures. Vermont, a long-time domicile, is getting increased attention because of their strong reputation and their leadership as the top domicile worldwide.

“All stakeholders enjoy the stable political and regulatory environment Vermont has to offer to operate in,” Bigglestone said.

Of course, a lot of consideration goes into deciding whether or not a captive is the right choice for a particular company. Businesses need to assess their exposures and their books to make sure they can adequately operate a captive.

There are significant advantages, however. “For low frequency, high severity risks, captives can access the reinsurance markets directly, so it’s very attractive for businesses to put a captive in place,” Bigglestone said.

And carriers are more accepting of captives as part of a broader insurance program.

“Captives are changing the relationship businesses have with commercial carriers,” Bigglestone said. “Commercial carriers are wanting to see companies with skin in the game; therefore, the relationships have evolved to be less transactional and more strategic.”

Balancing Bureaucracy

With 76 global domiciles, companies have a lot of options when it comes to selecting a captive partner. “Captive insurance domiciles compete globally for the business,” Bigglestone said. “If you were to put all 7,000-plus captive insurance companies around the world, all in New York, it wouldn’t have the same economic impact as 700 captives in Vermont does. The captive insurance industry is very important to our state and we will continue to support it in any way we can.”

Businesses should look for domiciles that balance a need for quality regulations with a process that isn’t overly bureaucratic and is seamless for business owners to navigate.

“Companies are attracted to an environment with quality regulatory standards and a stable regulatory environment,” Bigglestone said. “Vermont sets the regulatory standard in terms of financial analysis and examinations.”

In addition to quality regulations, firms will want to seek out a domicile that is agile enough to license captive insurance companies that fit their unique needs. It is important that a domicile have firm but fair regulation and the experience to consider new ideas and implement them. Companies must consider a variety of factors when choosing a domicile and not everyone will be the right fit for every company.

“You have to consider the captive owner and the industry sector that that owner operates in, as well as the insurance risks that are going into the captive program,” Bigglestone said. “Captive laws and regulations have to have a reasonable degree of flexibility to accommodate all the varying needs of owners and then impose rules based on the merits of each captive program.”

She added that creativity is a critical part of the process: “The ability to vet concepts and ideas with trusted individuals is key to having quality standards,” Bigglestone said. “And it can make captives appealing to insureds who are tired of commercial carriers not meeting the needs of the business, and who desire more control over their insurance programs.”

“When you think about the commercial marketplace, commercial insurers are supposed to operate in each jurisdiction in a competitive manner. Commercial carriers often look the same. They sell auto coverage to anyone with a driver’s license. The rules and regulations imposed upon commercial insurance companies are designed to be more formulaic for that reason,” Bigglestone said.

“Uniform regulatory standards apply to commercial carriers for the protection of the policyholders. These are standards all insurance regulators focus on, and standards captive insurance regulators need to understand, but with a specialized focus.”

A Quality Domicile Built for the Future

A combination of experience, regulatory standards and talent make Vermont a top domicile for companies looking to form a captive. The longevity of licensing captive insurance companies for over forty years is a testament to the quality work they’ve provided in the past and will continue to provide for many years to come.

Vermont’s reputation has helped the state attract and retain top captive talent, ensuring the businesses it serves are in good hands. The state has 32 employees dedicated to captives, and their average employee retention is 15 years. The Vermont Captive Insurance Association, the largest captive insurance trade organization, also helps companies connect with professional services needed to make their captive successful.

“There’s a whole host of service providers with proven expertise right here in Vermont,” Bigglestone said.

Taken together, Vermont’s resources, expertise and talent make it a prime domicile. They’ve been on a growth trajectory over the last few years and that’s unlikely to change anytime soon. Companies can trust their captive will be in good hands when they choose Vermont.

“Vermont has always competed on quality,” Bigglestone said. “We do have a mission and that hasn’t changed in over 40 years. It’s to maintain a system, or domicile that attracts quality business to Vermont, to promote our reputation in the industry, and to uphold a regulatory framework to protect the solvency of the companies that choose to place their business here.”

To learn more, visit: www.vermontcaptive.com

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with State of Vermont. The editorial staff of Risk & Insurance had no role in its preparation.

The State of Vermont, known as the “Gold Standard” of captive domiciles, is the leading onshore captive insurance domicile, with over 1,200 licensed captive insurance companies, including 48 of the Fortune 100 and 18 of the companies that make up the Dow 30.