Comment: Opportunities in a dystopian world

Comment: Opportunities in a dystopian world

I always look forward to the launch of the World Economic Forum’s annual Global Risks Report <www.weforum.org/globalrisks2013>: not only is the study well presented but it is compulsive reading in a macabre sort of way. The dystopian vision of the future it envisages is like scene from a Philip K Dick novel. Yet its warnings of “digital wildfires” and emerging pandemics are meat and wine to chief risk officers who need to know about this stuff.

Along with its usual assessments and updates on global risks, this year’s report looked into the distant future, for so called X Factors – emerging concerns that are not yet on the radar of policy-makers. These “known unknowns” were put together by the editors of Nature magazine using their in-depth knowledge of scientific research that has not yet crossed over into the mainstream.

One dreaded X Factor is the risk of runaway climate change: the idea that we have already triggered a runaway chain reaction that tips the earth’s atmosphere into an inhospitable state. Another, linked, X Factor explored in the report is the possible rogue deployment of geoengineering. Scientists are exploring how, with international agreement, they could manipulate the earth’s climate. This could involve solar radiation management, for example, whereby small particles are injected high into the atmosphere to block incoming solar energy. But what if this technology were hijacked by a rogue state?

Discovery of alien life is the most intriguing X Factor explored by the Nature team, prompting questions like, what would be the effects on science funding flows and humanity’s self image? “Suppose observations point to a potential future home for mankind,” the report posits.

If that all sounds far-fetched, the global risks discussed in the main body of the report are all too real. The global risk that most of the 1,000 specialists involved rated as most likely to manifest over the next 10 years is severe income disparity, while the risk rated as having the highest impact is major systemic financial failure. The two risks appearing in the ‘most likely’ section and the ‘most impact’ section are chronic fiscal imbalances and water supply crises.

Of particular interest to reinsurers in view of Hurricane Sandy and recent flood events, respondents rated rising greenhouse gas emissions as the third most likely global risk overall, while the failure of climate change adaptation is seen as the environmental risk with the most knock-on effects for the next decade.

Speaking at the launch of the report in London, Axel Lehmann, chief risk officer of Zurich Insurance Group, said: “With the growing cost of events like Superstorm Sandy… and no resolution to greenhouse gas emissions, the writing is on the wall. It is time to act.”

The headline finding of the study was that the world is more at risk as persistent economic weakness saps our ability to tackle environmental challenges, echoed by the comments made by Swiss Re CRO David Cole that coping with the economic crisis and climate change  is no longer seen as a continuum but as opposing choices. “We need to go beyond this thinking in boxes approach,” he said.

Speaking to Zurich's Lehmann on the sidelines of the event I asked him what he personally thought were the big insights provided by the report.

“The whole notion of interconnectivity is on everyone’s mind. But in reality we still tend to look at things through an economic lens, a societal lens, a political lens and a science lens. Bringing all of these perspectives together is one of the key insights this study provides,” he said. “It helps sharpen thinking and it influences your actions. At the end of the day it is all about the actions you take.”

Lehmann told me that policymakers at governmental level would do well to emulate what insurance corporations have already achieved. “In the corporate world a lot of progress has been made in risk management practice in terms of ERM.  Global risks don’t stop at national borders they are cross country, cross regional, inter regional. Like corporations, countries need to act on these risks, sharpen their thinking on risk management,” he said.

Lehmann also believes that many of the emerging risks identified by the report represent opportunities for the insurance industry. “We have developed products for supply chain risk in the area of interconnectivity between economic and environmental risk, for example. We have developed cyber risk transfer products. Emerging risks provide an opportunity to innovate and show how the industry can mitigate some of these emerging risks.”

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