The COVID-19 pandemic has transformed the global risk landscape. It has accelerated shifts in politics and regulation. It has changed the way we work and the way we communicate with each other. It has increased our reliance on technology and highlighted vulnerabilities in the global just-in-time supply chain. Importantly, the pandemic has shown the critical nature of forward-looking risk management in order for society to adapt to a changing risk landscape.
Every year, global reinsurer Swiss Re publishes a SONAR report, which informs and inspires conversations about emerging risks so that the re/insurance industry can continue to build resilience worldwide. Patrick Raaflaub, group chief risk officer (CRO) at Swiss Re, said producing the report in the middle of a pandemic was a unique experience.
“We’d featured pandemic risk a few times in previous SONAR reports, so it felt like we were producing the 2020 report during an ‘emerged emerging risk’. We questioned if it made sense to talk about emerging risks [while we were living through one], but I’m glad we did,” he said.
“I’m also glad that being in the insurance industry, we’re in an industry where we constantly deal with uncertainty – with known unknowns – and we even have to explore the unpleasant or scary unknowns. We’re very much aware that there are many unknown unknowns out there, and we still have to serenely go about trying to provide the best possible service to our customers.”
The 2020 SONAR report described how the COVID-19 pandemic has amplified intergenerational tensions, supply chain disruptions, and the fragility of public healthcare, among other things.
Intergenerational imbalances were on the rise before the pandemic, according to Raaflaub, but as he pointed out: “it’s clear that those imbalances have increased” as a result of COVID-19. The recession caused by the containment measures to curb spread of the coronavirus has exacerbated longer-term structural problems in society. While older generations turned out to be more vulnerable in the pandemic from a health perspective, millennials and younger generations have struggled with high unemployment, pandemic-related lay-offs and wage cuts, and managing debt. So, the question becomes: “How do we deal with that?” Raaflaub asked.
“Another issue that was true before but has now fully emerged during the pandemic is supply chain risk in the global pharmaceutical industry,” he added. “Global supply chains have allowed very significant concentration of production capacity, which also makes these production capacities and distribution capacities exposed to natural hazards, to political risk, but also things like business interruption risk because borders are closing for public security or public health reasons. We’ve seen some of that in the past year.
“Mental health issues among the young is another [already present risk]. It’s being talked about a lot because of the pandemic, but it was a topic that developed in plain sight well before COVID-19. It has significant repercussions on the risk landscape and also potentially on us – the (re)insurers – in terms of opportunity, but probably even more so in terms of risk.”
The 2020 SONAR report also highlights other emerging risks that are not directly tied to the COVID-19 pandemic, such as climate change and carbon removal, the ever-growing prevalence of cyber risk, green buildings, the health risks associated with vaping and e-cigarettes, and things like the use of hydrogen fuel cells and synthetic bio-hazards.
“We try to distinguish between when we think the potential impacts [of these risks] will start to emerge, and how significant the impact might be on insurance in general,” said Raaflaub. “A few years ago, we started to look and what we call ‘the slow burners’. These are topics that evolve over multiple years and tend to sometimes be overlooked because other more pressing and immediate issues capture all the public attention, including the attention of policymakers, of business executives, just of decision makers in general.”
