The world is riskier for two major reasons:
- Natural disasters are trending up.
- Emerging risks add to the previous portfolio of risk.
There is empirical evidence that windstorms in particular are at or near record levels.
It started six years ago with Hurricane Katrina and continued this spring with a large volume of tornadoes in the U.S. and the tsunami in Japan. Fortunately for the global insurance market, only a relatively small portion of the tsunami was reinsured.
The use of the Internet and general increase in technology has increased risk; the cyber risks we see today were virtually nonexistent 10 years ago.
Recently we have seen hackers shut down various online services, and identity theft is on the rise, thanks to the bad guys' use of technology.
The good news is that risk-management tools have been enhanced to address greater risk.
Also, the insurance market has provided substantial surplus capital to handle recent catastrophic property losses generally without significant premium increases.
Given this increase in risk, it is no coincidence that many new insurance products have been developed in the past 10 years. Right about the year 2000 employment-practices liability developed into a viable product with substantial coverage at a reasonable premium. In a similar timeframe, stand-alone pollution-liability policies became viable with good, affordable coverage.
On the plus side, pollution risk is one area that appears to be much more manageable today than it was over 20 years ago when there were Superfund losses and litigation was necessary to determine whether coverage was available within general-liability policies.
And increased risk does create opportunities. The role of the risk manager has grown—whether it is an expansion into enterprise-risk management or an expansion of insurable risks. Insurers and other risk-management service providers have a greater role today.
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