Emerging geopolitical risks, the re-emergence of asbestos, especially in high growth markets, but also risks arising from new technologies such as cyber risks, biased algorithm, and the erosion of risk diversification are some of the key risks identified in a report published by Swiss Re Ltd.
According to Swiss Re, the five top 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 reinsurance business. National protectionism and regulatory fragmentation are jeopardizing the benefits of international diversification.
– Asbestos reloaded: Not all countries have banned asbestos. The United Nations estimates that one third of the people living in Europe potentially are exposed to asbestos at work or in the environment.
– Lurking 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 are only human too: 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.
The report “is not about forecasting the future or covering all emerging risks, but rather about preparing for its potentialities,” said Patrick Raaflaub, the group chief risk officer at Swiss Re. “The more transparency and the more time we have, the better we can adapt to the changing risk landscape,” Mr. Raaflaub added.