Underwriters have plenty to worry about, but there is one word that perhaps rattles them more than any other word. That word is aggregation. Aggregation, in the transferred or covered risk usage, represents the multiplying potential of a risk. For examples, we can look back to the asbestos claims that did so much damage to Lloyds’ of London names and syndicates in the mid-1990s.
More recently, underwriters expressed fears about the aggregation of risk
from lawsuits by football players at various levels of the sport. Players, from Pee
Wee on up to the NFL, claim to have suffered irreversible brain damage from
hits to the head.
That risk scenario has yet to fully play out — it will be decades in doing so —
but it is already producing claims in the billions.
This year’s edition of our national-award winning coverage of the Most
Dangerous Emerging Risks focuses on risks that have always existed. The
emergent — and more dangerous — piece to the puzzle is that these risks are
now super-charged with risk multipliers.
Take reputational risk, for example. Businesses and individuals that were
sharply managed have always protected their reputations fiercely. In days past, a
lapse in ethics or morals could be extremely damaging to one’s reputation, but it
might take days, weeks, even years of work by newspaper reporters, idle gossips
or political enemies to dig it out and make it public.
These days, the speed at which Internet connectedness and social media can
spread information makes reputational risk an existential threat. Information
that can stop a glittering career dead in its tracks can be shared by millions with a
casual, thoughtless tap or swipe on their smartphones.
Aggregation of uninsured risk is another area of focus of our Most Dangerous
Emerging Risks (MDER) coverage.
The beauty of the insurance model is that the business expands to cover
personal and commercial risks as the world expands. The more cars on the
planet, the more car insurance to sell.
The more people, the more life insurance. Brand new technologies, brand
new commercial covers. It all works well; until it doesn’t.
As Risk & Insurance® associate editor Michelle Kerr and her sources point out,
growing populations and rising property values, combined with an increase in high-severity catastrophes, threaten to push the insurance coverage gap to critical levels.
This aggregation of uninsured value got a recent proof in CAT-filled 2017.
The global tally for natural disaster losses in 2017 was $330 billion; 60 percent of
it was uninsured.
This uninsured gap threatens to place unsustainable pressure on public
resources and hamstring society’s ability to respond to natural disasters, which
show no sign of slowing down or tempering.
A related threat, the combination of a failing infrastructure and increasing
storm severity, marks our third MDER. This MDER looks at the largely
uninsurable risk of business interruption that results not from damage to your
property or your suppliers’ property, but to publicly maintained infrastructure
that provides ingress and egress to your property. It’s a danger coming into shape
more and more frequently.
As always, our goal in writing about these threats is not to engage in fear
mongering. It’s to initiate and expand a dialogue that can hopefully result in
better planning and mitigation, saving the lives and limbs of businesses here and
around the world. (These articles are on pages 28 to 41.) &
DAN REYNOLDS is editor-in-chief of Risk & Insurance®. He can be reached at
MOST DANGEROUS EMERGING RISKS
It’s not that these risks are new; it’s that
they’re coming at you at a volume and rate
you never imagined before. By Dan Reynolds