Aon’s global CEO of analytics discusses existential risks facing risk managers and challenges for risk transfer to stay relevant

Emerging threats have transformed the risk landscape over recent years, meaning new existential threats for risk managers and a similar dilemma for risk transfer providers – unless insurance firms want to be dismissed as irrelevant.

That was the message from Paul Mang, Aon’s global CEO of analytics, who has been speaking at an event hosted by the re/insurance broker on Australia’s Gold Coast this week encouraging the re/insurance industry to “re-imagine risk” to better prepare for future challenges.

“The things that risk managers worry about are all about volatility,” said Mang, speaking to StrategicRISK. “How confident are they about insurance industry solutions? Emerging risks require new products that immediately bring up questions about capital for companies.”

Translated into underwriting terms, emerging risks are transforming re/insurers’ exposures on the liability side.

“Social media are creating more volatility, so there’s a race for emerging risks to create new products and innovation” said Mang.

He cited some increasingly familiar and highly interconnected intangible risk topics as big challenges which insurers to meet risk managers’ needs to stay relevant: reputational risk; cyber risks; and supply chain and business interruption risks.

Mang noted that among such risks cited as major threats by the risk management community, there is a relative dearth of insurance products available – versus more traditional insured perils.

“I’m talking about casualty catastrophe,” he said. “An existential threat now is probably not the factory burning down – given the covers available – instead it’s a reputational or liability issue.”

The industry is doing its best to catch up with such risks, he suggested, noting the fast-growing cyber insurance market, which has reached about $2bn of coverage globally – although much of this is still derived from US buyers.

However, insurers and their reinsurers are increasingly fretting about aggregation risk owing from a lack of historical loss data and unpredictable correlations involved with cyber exposures for which traditional borders and geographical diversification are irrelevant.

Supply chain represents another rapidly evolving and complex risk area. “Technology that allows manufacturers to create much more sophisticated supply chains, with faster and better distribution” he said.

“However, the technology that allows you to do that also raises the risk severity if there’s any disruption,” Mang added.

Pathogen risks were also highlighted by Aon’s analytics boss, again stressing global interconnectivity.

“For example, Supply chains for food are getting away from having seasonal variety. That’s great for some things but it’s also creating greater risks of food-borne illnesses,” he said.

Progress for transferring emerging risk is going to rely on the quality of data, Mang suggested.

“When we make progress, it comes from data from non-traditional sources, not traditional insurance data of exposures, claims and losses,” he said.

“For cyber risks we can do that by working with technology firms and the people who control the servers,” said Mang.

The same principle applies for pathogen risk and supply chain risk, he suggested. “Again, it’s not insurance data but looking at genome technology, and working out how that is linked to the supply chain.”

Insurers need to accept this challenge, he emphasised.

“The thing is not to wring our hands and say we can’t do anything about reputational or cyber risks,” he said.

“Instead we need to use different tools, work with different partners, and get outside usual sources of data,” Mang added.