Vince Tizzio, President and CEO, AXIS.
William Pollard is often credited with saying, “Without change, there is no innovation, creativity, or incentive for improvement.”
As we are all experiencing across both our professional and personal lives, we’re living in a period of transcendent change and transformation. Economic uncertainty, shifting geopolitical dynamics, war, technology disruption and AI, the global energy transition, information traveling faster than ever before…
Against this backdrop, the risk landscape has not only transformed, but it is in a constant state of evolution. Indeed, risks are evolving much faster today and with greater interconnectivity and increased complexity. Similar to a butterfly effect, a loss event that happens in a specific industry or geography can create a chain reaction with wide repercussions. Just consider the pervasive impact of the global chip shortage, which impacted close to 170 industries during the Covid and post-Covid periods, according to an analysis by Goldman Sachs.
Or consider what we refer to in insurance as climate risk. Regardless of the causes, we have seen a steady and measurable increase in the frequency and severity of climate-related loss events. Within the business of risk management, we can no longer look to historic models as an accurate predictor of loss probability. A notable example is the recent and tragic wildfires in California, which Accuweather reported will result in more than $250 to $275 billion in damage and economic losses, making it one of the costliest natural catastrophes in U.S. history. Moreover, according to a study from the National Integrated Drought Information System (NIDIS), from 1996 to 2021, there has been a +320% increase in burned area.
As a global business community, we must accept the reality that the past is no longer prologue, and innovative risk solutions will be required for organizations to navigate and adapt to the world around them.
Key Emerging Risks
In this dynamic environment, there are emerging risks that are almost certain to impact nearly all organizations. I’ll share several that are particularly relevant:
Cyber
The resurgence of ransomware, privacy regulations, the impact of AI in driving more sophisticated cyber attacks, rising geopolitical tensions and the threat of cyber warfare are among the many ways the cyber landscape is evolving. As AI will further amplify and accelerate these threats, it will also have the potential to enhance cyber security measures.
Directors And Officers
We’re in a particularly litigious environment—and directors and officers insurance, also known as “D&O,” is liability insurance that’s designed to protect the executives who serve as directors or officers of a company from personal losses if they are sued by the organization’s employees, vendors, customers or other parties. And there is the phenomenon of “nuclear verdicts” where juries are providing very large awards to plaintiffs, a broader trend known in the insurance industry as “social inflation.”
Energy
I anticipate the United States energy marketplace will renew its focus on traditional energy while the global demand for investments in clean energy continues to grow. The resulting risk environment in energy is highly complex, and organizations will be challenged to traverse emerging political developments, regulatory and policy changes, potential energy price volatility, technology advances and supply chain disruption.
Our Path Forward: Collaboration And Innovation
Pointing back to the opening quote that I shared from Pollard, amidst rapid and extensive change is the potential for innovation and new possibilities.
As a global insurance CEO, I am consistently hearing from customers, representing a broad range of industries, that the risk products and solutions that they are looking for are not available in standard markets. This has fueled what is being referred to in our profession as the golden age of the “excess and surplus” sector, which specializes in the development of tailored insurance solutions for unique or hard-to-place risks. According to the Wholesale & Specialty Insurance Association (WSIA), the E&S market saw $81 billion in premium generation, which is up from $37.5 billion in 2019.
Indeed, we’re now living in a world where nearly every company and organization has its own set of unique and hard-to-place risks. As insurers, there is a clear call to action to innovate and offer highly customized products and solutions that help our customers turn business challenges into business possibilities.
Fully realizing this opportunity will require collaboration across a range of stakeholders. By sharing insights—between insurers, corporations, government, regulators and other public entities—we can help all involved better understand emerging risk trends, identify precautionary measures, co-create new risk management products and, in the case of extreme events, identify where government backstops are needed, including protection for large, systemic risk events ranging from severe natural catastrophes to large scale cyber breaches.
Looking in the mirror, insurers have a crucial role to play in this effort and we must act as catalysts in forging these collaborative efforts while also investing in enhanced data and analytics, technology platforms and AI solutions to yield even deeper risk insights and so that we can be even more responsive in supporting our partners and customers.
We’re operating in a world where it can feel like there is risk around every corner, and yet opportunity abounds. It is collaboration, creativity, ingenuity and our ability to together identify elevated solutions that will lead us forward.
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