FANews
FANews
RELATED CATEGORIES
Category Risk Management
SUB CATEGORIES General | 

Complacency is nobody’s friend

20 July 2017 Jonathan Faurie

The recent Western Cape Storm and Knysna Fire has shown us the importance of risk forecasting and risk management.

And yet, for the most part, the South African insurance market feels that it does not face similar risks as experienced in international markets. The problem with this thought paradigm is that South Africa does not exist in isolation from the rest of the world; we need to realise that we are part of a global landscape, and that perils usually experienced in international markets can well make their way to our shores.

Global playground

The above statement was the preamble of the recently released Swiss Re Systematic Observation of Notions Associated with Risk (SONAR). It is Swiss Re’s tool for identifying, assessing and managing emerging risks.

Patrick Raaflaub, Chief Risk Officer of the Swiss Re Group, said that today’s dynamic risk landscape confronts the reinsurance and insurance industry with new challenges and opportunities both at an ever faster pace and in increasingly unexpected ways.

“Changes in our environment modifies known risks, creates new ones and opens opportunities for the insurance industry to reduce, mitigate or transfer risk in more efficient ways,” said Raaflaub.

The big drying

One of the biggest risks that is facing the world at the moment is diminishing water resources and the increased prevalence of drought conditions. South Africa recently experienced one of the worst droughts in its history, and dams in the Western Cape are still worryingly on an all-time low level.
 “The World Resources Institute ranked water stress (ratio of withdrawals to supply) in 167 countries and found that 33 countries will face severe water stress by 2040. Climate change is expected to be the major driver of this risk. Detectible trends towards more frequent drought conditions before the end of the 21st century can be observed in areas such as the Mediterranean, South Africa and parts of the Americas,” said Raaflaub.

Some of the potential impacts of this include: losses in agricultural, energy and forestry sectors due to the dry conditions. Because of the water shortages, there is an increased risk of large scale fires which will affect wilderness areas; and, drought induced soil subsidence can create property damage from cracks in buildings and other infrastructure.

Blame the robots

As the Fourth Industrial Revolution gains momentum, Artificial Intelligence (AI) will play an increased role in society.

At the moment, robots and machines cannot be programmed to make decisions at a level close to humans. However, with advances in technology, this is rapidly changing. At the moment, if a risk occurs, the manufacturer of the machine is liable for it. But if technology advances to a stage where robots can make intelligent decisions, should manufacturers be freed of this liability? On whose doorstep will it then fall; the owner of the machine or its operator?

“Discussions about future liability regimes and financial security instruments tailored to respond to the liability risks associated with autonomous systems in general have gained momentum in the European Union. There is a particular focus on managing robotics, AI and machine learning,” said Raaflaub.

The biggest impact with this risk is that discussions on future liability regimes will gain importance with the take-off of autonomous systems and robotics in general, and with AI in particular.

Sensors as weapons

The Swiss Re report indicates that the proliferation of the Internet of Things (IoT) continues unabated and is leading to an explosive spread of digitally enabled devises in public, home and manufacturing/commercial use.

“As early as 2018 it is expected that there will be 22 billion IoT enabled devices in the world; this is excessively more than the estimated 7 billion households that exist in the world. However, security on many of these devices are questionable which leaves them susceptible to targeted cyber-attacks,” concluded Raaflaub.

Editor’s Thoughts:
The risks that we face in the world are significantly more numerous and complex than the ones we discussed above. If the SONAR report proves anything, it is a fact that complacency is nobody’s friend. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.

Comment on this post

Name*
Email Address*
Comment
Security Check *
   
Quick Polls

QUESTION

Have you seen insurers implementing rate adjustments / risk management around climate change?

ANSWER

Yes
No
fanews magazine
FAnews June 2024 Get the latest issue of FAnews

This month's headlines

Understanding prescription in claims for professional negligence
Climate change… the single biggest risk facing insurers
Insuring the unpredictable: 2024 global election risks
Financial advice crucial as clients’ Life policy premiums rise sharply
Guiding clients through the Two-Pot Retirement System
There is diversification, and true diversification – choose wisely
Decoding the shift in investment patterns
Subscribe now