The world is ever evolving and new unexpected challenges, often referred to as “emerging risks”, have surfaced posing significant threats to businesses and society at large. Climate change transition, cybersecurity issues, AI and critical infrastructure blackout stand out as some of the top emerging risks in If P&C Insurance’s emerging risk work , reshaping the landscape for companies and insurers.

The risks relating to climate change were identified decades ago. However, its consequences remain, to some extent, unknown, while extreme weather phenomena for example continue to increase. It is expected that the likelihood of severe impacts on businesses and society alike will continue to grow in frequency over the coming years. The changing climate is causing companies to re-examine the most fundamental elements of their existing businesses and ways of working. For instance, a factory constructed decades ago may need to be assessed for new risks as a result of heavy rain, flooding, or increased snow loads.

Numerous legal theories are applied in the rising tide of climate litigation. By August 2024, the Sabin Centre for Climate Change Law had listed 1.822 cases in the USA and 939 cases in other countries. The rise in climate change litigation highlights a growing focus on corporate accountability for environmental issues.

The surge in litigation cases reflects a heightened willingness among citizens and NGO’s to challenge the administration and authorities but also stakeholders to seek legal remedies for climate-related concerns.

According to Matti Sjögren, Nordic Liability Risk Management Specialist at If, “Climate change adaptation will increasingly impact how we manage insurance as climate change causes in the future more extreme weather-related disasters. Climate change litigation represents another view on the development of climate change-influenced phenomena, including liability claims. Viewing these cases shows us that they are not always directly related to the insured values or risks.”

Cyber risks are here to stay

According to ENISA (the European Union agency for cybersecurity) the top emerging cybersecurity threats for 2030 are related to dependencies, disinformation and human error, among other threats. The evolving threat landscape poses risks to affirmative products and conventional ones such as property and liability insurance.

Top emerging cybersecurity threats:

• Supply chain compromise due to integration of components and services combined into new products: Cyberattacks targeting software dependencies
• Advanced disinformation campaigns: Involving the abuse of AI and e.g. the creation and utilisation of deepfake videos
• Rise of digital surveillance authoritarianism
• Threatening privacy through the misuse of data from mobile phones, surveillance cameras, and computers.
• Human error and legacy system exploitation:
• Vulnerabilities within cyber-physical ecosystems.
• Targeted attacks leveraging smart device data:
• Exploiting the interconnected nature of smart devices for enhanced cyber threats.

Similarily, the Allianz Risk Barometer ranks cyber risks such as IT outages, ransomware attacks, and data breaches as the most significant global risks for the second consecutive year. Geopolitical tensions, exemplified by the conflict in Ukraine, are reshaping the cyber risk landscape, increasing the likelihood of large-scale cyber-attacks. The frequency of ransomware attacks remains high, with losses increasing as criminals hone their tactics to extort more money, while the average cost of a data-breach is at an all-time high. Attacks are not just affecting large corporations, but also smaller and mid-size businesses. Additionally, a shortage of cybersecurity professionals within companies adds an extra layer of complexity to the challenges.

Supply chains disrupted

Supply chain disruption emerges as a critical concern, with volatility in prices and temporary disruptions unable to be fully addressed through insurance pricing. Geopolitical conflicts, inflationary pressures, climate change events, and cyber threats contribute to disruptions in the flow of goods, causing port delays, reducing freight availability, and contributing to surging prices.

The KPMG Global Operations Centre of Excellence predicts key supply chain trends, including scepticism about cross-border trade cooperation, increased cybercriminal activity, changing manufacturing footprints, rapid shifts in retail and distribution supply chains, accelerated technology investments, and heightened scrutiny of Scope 3 emissions on the environmental, social, and governance (ESG) front.

What is the new asbestos?

This rhetorical question is often quoted in risk management circles. It refers to the asbestos-related liability and occupational disease cases for which the insurers have paid 100-200 billion euros across many decades. The reasons for these extremely wide-reaching injuries and fatalities and their compensations were due to the extensive use of asbestos materials in buildings and various industries before the health hazard was fully understood. The asbestos fibers cause serious illnesses often decades after the exposure.

Could nanotechnology, which is widely used in everyday consumer products but may have unknown effects, be the ‘next asbestos’? Nanotechnology involves manipulating substances at the atomic and molecular levels to create innovative materials and processes. If the materials developed would be hazardous, they might cause occupational injuries at the manufacturing sites and product liability claims from the users of the products.

The chemical industry, crucial for making and handling nanomaterials, presents potential risks to workers. Industries incorporating nanomaterials in production may encounter class action claims from consumers alleging damages. The transportation of nanomaterials could unintentionally lead to pollution and subsequent claims.

The current evidence is inconclusive, prompting the development of various risk assessment models and frameworks to understand and evaluate the available data on the health effects of nanomaterials. Compared to asbestos, it might be difficult to prove the causal link between a particular nanomaterial and a certain illness.

History shows that technologies once thought of as major advancements can later be seen as highly risky. For example, chlorofluorocarbons made refrigeration, air conditioning, and aerosols possible but consequently harmed the earth’s protective ozone layer. Lead additives improved paint durability but have increased the risk of poisoning for future generations. Asbestos, while providing insulation, caused severe damage to human respiratory systems. Research suggests that specific carbon nanotubes may pose health risks similar to asbestos, though not all nanotubes carry the same level of danger.

The latest candidate for the “next asbestos” are the PFAS added to If’s Emerging Risk Radar. They are man-made per- and polyfluorinated alcyl substances used in consumer and industrial products, especially for their stain and grease resistance properties since the 1930s. They are very long-lasting and, thus, called forever chemicals. PFAS migrate in the environment and accumulate in human bodies and are suspected of causing various serious illnesses . The still evolving research results and rapidly increasing claims around the world for environmental contamination and health issues make PFAS risk unpredictable to industries and insurers.

The nature of emerging risks

Few could have predicted the impact of COVID-19, when knowledge of the outbreak was first reported. Despite the best efforts to uncover potential emerging risks, in the year’s prior to COVID-19 few companies considered that a pandemic was going to unfold and significantly disrupt their operations, societies and economies on a fundamental level.

This year Sampo Group where also If belongs, hosted the update of Chief Risk Officers’ Forum’s Risk Radar published in their website. ¹  The CRO Forum was formed in 2004 to advance risk management practice in the insurance industry. This time they added as new risks social fragmentation and economic trade conflicts and sanctions to the risk radar and removed blockchain technology and digital currencies.

Considering all the presented risks, companies may be wondering what should we focus on? Matti replies, “Whether it is war, climate change, or a pandemic – the world continues to change at a rapid pace. The best way to face emerging risks is to understand what threats lie on the horizon, include these in your business continuity planning, and be prepared to act swiftly if they materialise.” 

¹ https://thecroforum.org/emerging-risks-initiative-major-trends-and-emerging-risk-radar-2024/