Article published in Insurance Inside n°13 - Mars 2019
Emerging risks: how do we manage them?
Companies have always faced new types of risks known as “emerging risks”. Whether new or evolving, they can be difficult to identify and manage. However, solutions do exist.
The impacts of climate change, the emergence of new health risks, cybercrime, reputational risks, etc., the number of risks facing companies today has never been higher. And they require delicate management, especially emerging risks. For the insurance sector, these are “risks that are likely to arise in the future and have high potential for claims”, according to the definition used by the Swiss Insurance Association (ASA). Their dynamic evolution and complexity make them particularly difficult to identify, quantify and understand. However, in the event of a disaster, they can severely impact businesses, governments and insurance companies.
Better identification means better prevention
“Emerging risks stem directly from the evolution of our society and the concerns that these changes raise” says Sophie Di Meglio, Special Risks Director at Swiss Risk & Care. Climate change, environmental awareness, the issue of migration, geopolitical tensions, the rise of new technologies in all areas: these are all complex areas that could have significant impacts. New technologies, for example, could generate new risks that are difficult to manage: cyber-risks, autonomous mobility, GMOs, robotics, 3D printing, artificial organs, the list is a long one! These risks must be identified as clearly as possible to enable them to be examined as early as possible and mitigated or prevented.”
Few insurance products
Yet few of these risks are insured; some are uninsurable and others only insured by boutique insurers, but with very high premiums. The issues include a lack of knowledge about the risks, a lack of statistical data, a lack of regulation and/or a lack of legal clarity. While regulation in the field of cyber threats is now slightly clearer, enabling special products to be created, it is less so in other sectors. Some insurance companies are able to offer bespoke guarantees, to cover operational risks for example, a subject that is becoming increasingly worrying for companies. Bespoke guarantees for certain key operational risks, most in line with scenarios established by the company, with significant capabilities offered by these insurers to respond to catastrophic risks.
Specialized support to plug the gaps
Brokers must report the issues facing their clients to the insurance companies and to do this, they must perfectly understand the environments in which their clients work in order to identify and understand the risks and their interactions. They can then discuss them and negotiate with the insurance company to establish suitable coverage. When the Swiss insurance market is too small, solutions can often be found abroad or even created from scratch (see below).
What does the future hold for Swiss insurance companies? The strategic analysis conducted by EY1 on the future of the sector leaves three choices: to perish, to survive or to prosper. To be continued...
As a risk management tool, the captive is an internal reinsurance company whose purpose is to insure the risks of parent companies and, in particular, risks that are difficult for traditional insurers, such as certain problems related to fraud and brand image. The captive identifies the reserves to be allocated to cover any damages, to settle claims and to protect the company’s balance sheet.
With its partner, Risk Reinsurance Solution SA (2RS), Swiss Risk & Care is offering new solutions for Swiss captives. It includes an extensive choice of domiciles in Switzerland and the European Union, as well as comprehensive actuarial and management services.
Insuring emerging risks: the problem is well known to Sophie Di Meglio, Special Risks Director at Swiss Risk & Care. Solutions do exist, even if outside of the Swiss market.
According to the study by EY, “Dying, Surviving gold Thriving”1, Swiss insurers remain “on the defensive” in terms of innovation. Is this an observation that you share?
EY’s analysis is pertinent. Innovation is not enough in view of the growing expectations of customers. They have specific needs that conventional insurers cannot meet. Traditional insurance companies have limited appetites for risk, or none at all in some segments. There may be differences between the offices of the same insurer in London and Switzerland, due to expertise which is lacking in Switzerland but available in London.
Is this why Swiss Risk & Care is the largest Lloyd’s broker in Switzerland?
As a broker, we need to find insurance solutions for our clients. If the Swiss market does not meet their expectations, we go to the other side of the Channel to probe the English market, and Lloyd’s in particular. Either products are already available, or we create coverage with Lloyd’s to cover the risks. We also benefit from their global approach, which can be very useful for our international clientele.
What are some of the other benefits for your customers?
As a subsidiary of SIACI SAINT HONORE, a European group specializing in consultancy and brokerage, we have a network of specialists in risk management at our disposal. In addition to their business skills in all branches of insurance - Transport, Political Risks, Global Jewellery, Fine Art, Construction, Financial Risks, etc. - they can handle problems in a variety of business sectors, even the most confidential ones. Our team in Geneva is specialized in financial risk.
1« Dying, Surviving or Thriving. Analyse stratégique de l’avenir du marché suisse de l’assurance », par EY. www.ey.com/ch/insurancereports