New risks arise as the world community faces well-known challenges such as the pandemic, the war in Ukraine, economic instability and a drop in trust in established social institutions, according to the Swiss Re SONAR report on the company’s 10th anniversary.
“We live in a world where billionaires can make day trips into the stratosphere, cryptoassets defy established financial norms, and climate change is changing the very nature of our physical environment,” emphasizes a press release published on the website of the international reinsurer.
A global pandemic, geopolitical conflicts, rising inflation and an ongoing climate crisis are just a few of the many risks that SONAR has explored over the past decade and that eventually materialized, according to Swiss Re Risk Group Director Patrick Raaflaub. However, the study of new risks is not forecasting. This is about raising awareness of the risks that may affect society, and about the appropriate preparation, the report says.
At the same time, it is noted that crypto assets and quantum computing create new risks in the global financial system.
In the current financial system, heavily dependent on technology, cryptocurrencies such as bitcoin and ether have established themselves as potential competitors to traditional currencies. Along with these new forms of currency, other crypto assets have emerged. Tokens, for example, allow people to buy digital images of real assets, such as art or real estate. They can be sold and give their owner access to assets, products or services. Changing ownership, taxation, regulatory issues and other risks associated with new asset classes pose new questions for insurers. For example, are certain crypto assets subject to existing ownership or cyber security policies?
The security of the new digital financial economy also faces new risks. In particular, thanks to quantum computing, a new generation of computers is on the verge of performing tasks that are inaccessible to modern machines. These ultra-intelligent technologies offer significant benefits: sophisticated weather modeling, advanced medical research and financial analysis. As they mature, they can also become a threat to existing IT security protocols, potentially breaking standard encryption keys used in online communications and data transmission, the report notes.
In addition, a new generation of emerging risks is linked to climate change, the company points out.
“Swiss Re identified the threat of climate change back in 1979. More than 40 years later, the effects of climate risks are being felt very strongly in our daily lives. Beyond what we already see, climate change is creating a new generation of emerging risks,” the paper emphasizes.
This year’s SONAR report explores how melting permafrost that covers a quarter of the northern hemisphere could not only damage infrastructure and accelerate climate change, but also release disease-causing pathogens that have been frozen for decades.
In addition, agriculture is particularly sensitive to climate change and is struggling to reduce its contribution to global warming. Emissions from global food production account for about 31% of total anthropogenic carbon emissions. The challenge for agriculture is to increase productivity and feed more people while reducing emissions. Insurers can play a vital role in the faster adoption and scaling up of sustainable farming practices by offering suitable risk coverage solutions and promoting climate-smart and regenerative agriculture, says Swiss Re.
“There was a time when today’s big issues such as climate change, the pandemic, geopolitical conflict and inflation were new risks in their own right. The 10th anniversary edition of SONAR is a poignant reminder of the long-term potential of emerging risks and how insurance the industry helps to increase the resilience of society,” the report says.
Swiss Re Group is one of the world’s leading providers of reinsurance, insurance and other forms of insurance-based risk transfer.
