Turmoil in emerging markets, increased localisation of internet networks within country borders and financial repression are some of the top risks identified by reinsurer Swiss Re in its 2016 SONAR report.
SONAR (systematic observation of notions associated with risk) has identified 21 emerging risks and their potential impact over time. Of these, the three top risks highlighted as having the highest potential impact are “emerging markets crisis 2.0”, “the great monetary experiment” and “Internet fragmentation”:
Emerging markets crisis 2.0
Turmoil in emerging countries could hinder the market entry and the penetration strategies of global insurance companies and even result in higher underwriting losses, especially in property, personal and commercial lines, for example in the case of riots.
The great monetary experiment
The long-term costs of negative interest rates and unconventional monetary policies are still unknown, yet they might lead to a broader loss of confidence in the monetary system. Short-term benefits are limited as the policies are unlikely to boost economic growth.
Internet fragmentation
Firewalls, special software to filter out unwanted information and isolated IT infrastructure detached from global networks: disconnected nets could soon become a reality. Their potential impact includes increased costs and disrupted business models for insurance companies and other businesses operating across borders.
Looking out for future generations
“Risk management is not just about managing risks in the present. It is about anticipating future ones to make sure we will be in a position to deal with them,” said Mr Patrick Raaflaub, Swiss Re’s Group Chief Risk Officer. “These risks may only fully reveal themselves to future generations. That doesn’t mean that we shouldn’t act today to reduce uncertainty and alleviate their burden.”
Swiss Re’s SONAR report highlights newly developing or evolving risks whose potential impact and scope are not yet sufficiently taken into account, drawing on a crowdsourcing tool. It is an annual publication.