WHAT WERE SOME OF THE MOST RELEVANT EMERGING RISKS IN 2024 AND WHAT CAN WE EXPECT FOR 2025? F.U. 2024 was a year marked by geopolitical risks, technological trends, and an increased appreciation of the complexity and interconnectedness of risks. The CRO Forum, of which SCOR is a member, added “Social Fragmentation” to its radar in 2024. This emerging risk has links to many topics relevant for insurance such as social unrest, terrorism, political instability, and mental health. 2 025 will likely see an acceleration of these geopolitical risks with potential for far-reaching consequences on trade and financial markets. Other key risks to monitor will include developments in technology risks, particularly cyber and AI. And while it’s not an emerging risk per se, we continue to see the consequences of climate change, in particular when it comes to non-peak natural catastrophe perils. A s a reinsurer, we have to keep very long-term horizons in mind when doing business and setting our strategy, so we constantly adjust our view to be prepared for adverse developments. Understanding historical events is no longer good enough to anticipate the future; we need to have a full forward-looking view on our risk landscape. CAN YOU EXPLAIN WHY WE’RE SEEING A GREATER INTERCONNECTEDNESS AMONG RISKS THAN WAS HISTORICALLY THE CASE? F.U. In our analysis, the greater interconnectedness of risks is directly related to two key drivers: the globalization of the world and the increased risks related to climate change. C learly, the increased speed in the spread of information also changes our perception of the interconnected nature of risks. The more information we have and the faster we receive it, the easier it is to identify patterns that reveal the relationships among various risks. But let’s be crystal clear, most risks that are currently insured are still independent and the industry’s approach of pooling and diversifying risk is still working and remains a key aspect of the insurance and reinsurance industry. I n any case, the interconnected nature of risks highlights the need for an integrated and comprehensive approach to risk management. Since the impact of one event can trigger a cascade of consequences across various sectors and regions, we need to ensure a thorough understanding of how different risks interact and influence each other. By recognizing and addressing these connections, we can better anticipate potential threats, develop more robust mitigation strategies, and enhance overall resilience – for our own business, as well as that of our clients and societies. IS THE INDUSTRY STARTING TO SEE RISKS THAT ARE UNINSURABLE? F.U. The industry is indeed challenged in respect to uninsurability of risks. It’s very important that we distinguish different drivers of the problem. There are risks that are so systemic in nature that there is no diversification or very limited pooling of the risk. For example, a nuclear war would fall into this category. A second category is that the price of insurance is so high that it’s uneconomical. For example, if a house is built in an area where we expect that it would be destroyed by a flood every five years, clearly the price of the insurance against this needs to be at least twenty percent of the price of the house. While theoretically insurable, it no longer makes sense. A third example which we see is where local market regulations impose a non-economic price that is no longer tied to the underlying price of the risk. This often leads insurance companies to withdraw from these markets. I t’s the industry’s responsibility to search for solutions while not compromising on the fundamentals of insurance, namely pooling risks and ensuring there is economic compensation for this. W e’re also reminded of the benefits of preventive efforts for these types of risks: as we face an increase in potentially uninsurable risks, reinsurers do have a role to play in encouraging prevention measures (page 46). It is always better to prevent a risk from occurring than to rebuild 38 ACTIVITY REPORT 2024
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