Category Archives: Emerging Risks

Americans view cyberattacks, climate change as major threats

Cyberattacks from other countries are now seen as a major threat to the U.S. by 72 percent of Americans, according to a national survey from the Pew Research Center.

This view has changed little in recent years, apparently. But what has changed is public opinions about other global threats.

Take climate change—now viewed as a major threat by 58 percent of Americans, up 7 points since January, and the highest share since 2009.

The survey was conducted October 25-30 among 1,504 adults.

When a fire becomes a liability accumulation event

Accumulation risk, where a single event triggers losses under multiple policies in one or more lines of insurance, is emerging in new and unforeseen ways in today’s interconnected world, says a post at Swiss Re Open Minds blog.

From Ruta Mikiskaite, casualty treaty underwriter, and Catriona Barker, claims expert UK&International Claims at Swiss Re:

“Accumulation scenarios have always been familiar in property insurance but for casualty lines of business, they have been perhaps less of an issue. However, large losses in recent years show how traditional physical perils should not be underestimated for their casualty clash potential.”

For example, Kilmore East-Kinglake bushfire, the most severe of a series of deadly wildfires in the Australian state of Victoria on Black Saturday, 7 February 2009, led to a settlement of A$500 million—the biggest class action settlement in Australian legal history.

Per Swiss Re’s post, the Royal Commission found that the fire was caused by poorly maintained power lines owned by power company SP AusNet and maintained by asset manager Utility Services Group. The Victoria State government was also held liable for its failure to provide sufficient prevention measures and inadequate warnings during the fires.

“With improved technology and scientific tools available to analyze and simulate scenarios following storms, fires and floods to predict their likely or alternative courses, any action by an individual, corporate body or government now attracts far greater scrutiny. As a result, there can be a greater readiness to sue for alleged nuisance or negligence leading to more casualty claims out of natural perils.”

The upshot: insurers need to look at their reinsurance programs to see how they would respond to liability clash events.

 

Cyber protection gap akin to nat cat

FedEx Corp has disclosed in a securities filing that its international delivery business, TNT Express BV, was significantly affected by the June 27 Petya cyberattack.

Apparently, the courier company did not have cyber insurance or any other insurance that would cover losses from Petya, according to this report by The Wall Street Journal, via the I.I.I. Daily.

A new emerging risk report from Lloyd’s and risk modeling firm Cyence notes that cyberattacks have the potential to trigger billions of dollars of insured losses, yet there is a massive underinsurance gap.

Take its first modeled scenario: a cloud service provider hack. The event produced a range of insured losses from $620 million for a large loss to $8.1 billion for an extreme loss (overall losses ranged from $4.6 billion to $53 billion).

This left an insurance protection gap of between $4 billion (large loss) and $45 billion (extreme loss), so between 87 percent and 83 percent of the overall losses respectively were uninsured.

In another modeled scenario, the mass vulnerability attack, the underinsurance gap is between $9 billion for a large loss and $26 billion for an extreme loss, meaning that just 7 percent of economic losses are covered by insurance.

From the report:

“In some ways, the cyber insurance market can be considered in the same light as underinsurance in the natural catastrophe space – risks are growing and insurance penetration figures are low.”

Man-made earthquakes in Oklahoma – a headache for insurers

I.I.I. research manager Maria Sassian and I.I.I. chief actuary James Lynch take a closer look at man-made earthquakes, based on a presentation by Kelly Hereid, Chubb Tempest Re at Reinsurance Association of America’s Cat Risk Management 2017 conference:

In Oklahoma, for each barrel of oil extracted by energy companies, seven to 10 barrels of wastewater are produced. Oil and gas companies use a technique called ‘dewatering,’ which allows a cheap separation of oil and water, making old geologic formations economic. The water, which sits underground for millions of years getting saltier and nastier with the passage of time, must be disposed of safely. Oil companies send it to disposal wells where it is injected deep into the earth. This disposal process has been linked to an increase in earthquakes because the injected wastewater counteracts the natural frictional forces on underground faults and, in effect, “pries them apart”, thereby facilitating earthquakes. Because of wastewater disposal earthquakes on natural faults are occurring faster than they would have happened otherwise.

The spate of earthquakes in Oklahoma (Figure 1) over the past few years has driven earthquake insurance take-up rates in that state from 2 percent to 15 percent (higher than in California).  According to NAIC data from S&P Global Market Intelligence and the I.I.I., direct premiums written from earthquake insurance in Oklahoma increased by over 300 percent from 2006 to 2015 (Figure 2). The Oklahoma market has been declared noncompetitive as only four companies combine to write a 55 percent market share. The action gave the state Insurance Department the right to approve rate changes in advance. Some insurers suggested a better solution would be to encourage competition rather than increase regulation.

Due to the volatile nature of the risk there is potential for insurance market surprises. Earthquake liability could harm energy prices and create an environmental risk problem for insurers. Some economists argue that housing prices could fall by nearly 10 percent following strong (MMI VI) shaking, which is not uncommon in magnitude 5+ earthquakes. Lawsuits over loss of value could get big fast.

The 2016 Pawnee earthquake was the largest in the Oklahoma historical record with a magnitude of 5.8.

One of the problems for insurers is that lots of wells are injecting so it’s tough to tell which company caused the earthquake. It’s also tough to tell if an earthquake has been induced since an induced earthquake looks the same on a seismograph as a natural earthquake. The USGS 2014 seismic hazard update is being incorporated into earthquake risk models now, but the update doesn’t contemplate induced earthquakes, which are now covered in USGS annual rate forecasts instead.

In recent years, the rate of injection has fallen due to regulation in the form of a mandated 40 percent decrease in wastewater disposal in key earthquake regions, falling oil prices and new geologic targets which produce less water. And it looks like reductions in injection volume are reducing activity. However, some experts believe the damage has already been done. Above-normal earthquake activity may continue for several decades, with fewer but potentially stronger earthquakes.

Oklahoma is a hotspot for earthquakes linked to wastewater disposal, but it’s not alone. Concerns in Texas led to the closing of a wastewater injection site near the Dallas-Fort Worth International Airport and there is evidence that some of the earthquakes that occurred in California decades ago may have been induced.

Check out the I.I.I. issues update Earthquakes: Risk and Insurance.

Need For Political Risk Coverage Accelerates

Amid ongoing political upheaval in Venezuela and a volatile geopolitical landscape elsewhere, the need for political risk insurance is rising to prominence for multinational companies.

AP reports that General Motors just became the latest corporation to have a factory or asset seized by the government of Venezuela.

GM said assets such as vehicles were taken from the plant causing the company irreparable damage.

To protect themselves against loss or damage to physical assets caused by political action and instability, businesses should consider purchasing political risk insurance.

This specialty type of insurance can protect against a variety of risks, including:

  • Expropriation
  • Political violence (including terrorism and war).
  • Currency inconvertibility.
  • Non-payment.
  • Contract frustration due to political events.

Due to the accelerating pace of geopolitical uncertainty, the market for political risk insurance is pushing toward $10 billion in 2018, up from $8.1 billion in 2015, according to a KPMG LLP report published last year.

Willis Towers Watson advises multinational companies to buy political risk coverage on operations worldwide — particularly for select regions —while it is still available, Business Insurance reports.

Political risk insurance is available from both private insurers and from government-backed insurers, including the Overseas Private Investment Corporation (OPIC), an agency of the U.S. government.

Aon’s Political Risk Map 2017 captures changing risks for businesses and countries across emerging and frontier markets.

Last year an equal number of countries showed a reduction in political risk as showed an increase, a trend which highlights the persistence of political risk across the globe, Aon said.

Sugar: The Next Tobacco?

Is sugar the next tobacco? Liability insurance experts say it could be.

Excessive, but not always obvious use of sugar (also salt) in food has the potential for systemic loss, a recent Lloyd’s report found.

The potential loss scenario unfolds if excessive levels of sugar are found to be harmful by scientific studies and if courts find food producers and/or the distribution chain liable for resulting damages.

“A societal shift may make the addition of significant amounts of sugar to our food unacceptable, with liability risks affecting food manufacturers (and possibly distributors and retailers).”

A sample footprint in the report (below), starting from sugar beet and cane farming to sugar and confectionary manufacturing and spreading to various other food manufacturers, wholesalers, retailers, and food and drink outlets shows the widespread distribution of sugar and the potential impact on many customers:

“Historical data suggests that the spread would also be amplified by the presence of large corporates with large insurance cover and funds.”

Businesses address their liability concerns through many types of risk management, of which insurance is an important component, according to the Insurance Information Institute.

A Swiss Re study indicated that the United States in 2013 had the largest commercial liability insurance market in the world both in premium volume ($84 billion) and as a percentage of Gross Domestic Product (0.50 percent).

WEF: Collaboration Imperative On Global Risks

The World Economic Forum (WEF) is calling for a redoubling of efforts to protect and strengthen systems of global collaboration in the face of increasingly disruptive risk trends.

In its just-released Global Risks Report 2017, the WEF warns that risk drivers such as income inequality, polarization of societies, and climate change need to be addressed collaboratively if solutions are to be found to the world’s most complex problems.

Nowhere is cooperation more urgent than in addressing climate and environmental risks, the WEF said. While important strides have been made in the past year, the pace of change is not fast enough and more needs to be done.

The WEF cited the Paris Agreement on climate change now ratified by 110 countries, and the landmark agreement to curb CO2 emissions from international aviation as important examples of global cooperation in 2016.

But political change in the United States and Europe is putting this progress at risk.

“This is a febrile time for the world. We face important risks, but also opportunities to take stock and to work together to find new solutions to our shared problems. More than ever, this is a time for all stakeholders to recognize the role they can play be exercising responsible and responsive leadership on global risks.”

The environment dominates the global risks landscape outlined in the WEF report, with extreme weather events emerging as the single most prominent global risk and climate change the number two underlying trend this year.

Society is also not keeping pace with technological change, the WEF noted. While new and emerging technologies can provide solutions they also exacerbate risks.

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Artificial intelligence and robotics were identified as having both the highest potential for negative consequences and also the greatest need for better governance in this year’s risk survey.

The private and public sectors need to work together and collaborate to address the challenges of the Fourth Industrial Revolution, the WEF said.

“It is critical that policy-makers and other stakeholders – across government, civil society, academia and the media – collaborate to create more agile and adaptive forms of local, national and global governance and risk management.”

How To Cover Electronic Aggression, or Cyberbullying

Recent events have reminded us that cyberbullying is not limited to children, with at least one survey indicating that 73 percent of adult internet users have seen someone harassed online, while 40 percent have personally experienced it.

For example, professional golfer Paige Spiranac last week spoke about the harassment she and her family experienced following her professional debut last year. The recent U.S. Presidential campaign has also highlighted the increasing prevalence of cyberbullying that targets adults.

Electronic aggression is the definition used by the Centers for Disease Control and Prevention (CDC) to describe any type of harassment or bullying that occurs through email, a chat room, instant messaging, a website (including blogs), or text messaging.

And the National Conference of State Legislatures (NCSL) defines cyberbullying as the willful and repeated use of cell phones, computers, and other electronic communication devices to harass and threaten others.

NCSL notes that cyberbullying differs from more traditional forms of bullying in that it can occur at any time, its messages and images can be spread and shared instantaneously to a wide audience, and perpetrators can remain anonymous, often making them difficult to trace.

Adult cyberbullying often takes the form of trolling where someone posts inflammatory messages in an online platform, such as on Facebook, or Twitter or in a chatroom or blog, with the sole intent to provoke a reaction from other users.

While there are many examples of cyberbullying against celebrities or public figures, any adult who uses the internet is increasingly at risk.

Social media platforms, including Instagram, Twitter and Facebook have responded by introducing new tools aimed at combating cyberbullying.

Just as technology is changing the way we interact with each other, so insurers have been moving to provide insurance coverage that can mitigate the financial loss and emotional harm suffered as a result of a cyberbullying incident.

For example, earlier this year Chubb made cyberbullying coverage available to its U.S. homeowners customers. The coverage provides up to $60,000 in compensation to clients and family members for expenses related to harassment and intimidation committed via personal computers, telephones or mobile devices. It can help mitigate the cost of wrongful termination, false arrest, wrongful discipline in an educational institution, or diagnosed debilitating shock, mental anguish or mental injury.

From the perspective of businesses, most traditional commercial general liability policies would not cover electronic aggression or cyberbullying claims. Specialist media liability policies developed by insurers may cover social media activities and industry experts say the number of insureds and insurance brokers looking at this type of coverage is increasing.

Specialized cyber policies developed by insurers may also be tailored to incorporate social media coverage. Check out the Insurance Information Institute white papers Cyber Risk: Threat and Opportunity and Social Media, Liability and Risks for more on this topic.

Cybersecurity and the Presidential Election

Insurance leaders say the upcoming U.S. presidential election could impact a range of issues, including healthcare and international trade.

Cybersecurity is another insurance-related issue that next week’s election is likely to impact. Forrester even predicts that the new U.S. president will face a major cybercrisis within 100 days.

A new Insurance Information Institute (I.I.I.) white paper notes that governments are facing an unprecedented level of cyber attacks and threats with the potential to undermine national security and critical infrastructure.

The I.I.I. paper, Cyberrisk: Threat and Opportunity, also highlights rising concerns over how hacked information may be used to influence a political outcome:

“Hacks of both Democratic National Committee and Republican National Committee emails during an election year have raised concerns that groups are attempting to influence the outcome of the 2016 U.S. presidential campaign.”

Just last Friday U.S. government officials accused Russia of trying to interfere in the 2016 elections, including by hacking the DNC computers and other U.S. political organizations.

And on Tuesday Microsoft said the Russian hackers believed responsible for hacking the DNC computers had exploited previously undisclosed flaws in its Windows operation system and Adobe’s Flash software.

The Wall Street Journal reports that apparent Russian attempts to disrupt the U.S. election highlight more mundane risks as well as a new weapon in information wars: the disclosure of hacked information to influence policy or public perception.

Meanwhile, cybersecurity experts have warned that the election systems in the U.S. are vulnerable at the local, state and manufacturer level.

The mounting concerns have prompted the Department of Homeland Security (DHS) to consider whether the U.S. voting systems should be classified as critical infrastructure.

Currently, there are 16 critical infrastructure sectors, such as the U.S. power grid and water supply, whose systems and networks are considered so vital to the U.S. that their incapacitation or destruction would have a debilitating effect on national security and public health or safety.

In fiscal year 2015, there were around 295 attacks on critical infrastructure control systems in the U.S., a 20 percent increase on the previous year, according to DHS figures cited in the I.I.I. paper.