No Small Risks

Recently, every time I pick up a newspaper or listen to the radio, I am struck by how certain issues that might severely affect our industry are continually hitting the headlines. Technological advances, environmental changes, decaying urban infrastructures — all of them have risk implications of which we should be aware and, more importantly, preparing to address. The challenge for our industry is to take a proactive approach towards research-ing, understanding and managing these emerging issues to the benefit of our industry and customers, both now and in the future.

NANOTECHNOLOGY

Small is huge, especially when it comes to nanotechnology. A nano is one billionth of a metre and 10 times the size of an atom. For fiction writers, nano possibilities have kept their imaginations running wild for years — from the threat of vicious nanobots taking over the world, to nano materials healing our bodies from within.

Rapid advances in modern research are quite literally bringing these possibilities to life. By 2008, the total global demand for nanoscale materials, devices and tools is expected to reach US$28 billion. Uses of nanotechnology to develop products are wide-ranging, allowing us to create ultra-efficient catalysts, detoxify wastes, assemble useful molecular machines and efficiently convert sunlight into energy. One example is “Nikitabot” — a nanobot about the size of a pinhead that, when used by the thousands, can eat up an oil slick in minutes. There is also the storage and transfer of energy using “nanoionics” and many other environmentally positive uses in development.

It’s an exciting future. From a risk perspective, however, some nanomaterials could potentially be toxic to humans or the environment. For insurers, the scale and scope of this threat is very much unknown. “At-risk” workers might include researchers involved in nanotechnology development, industrial workers producing nanomaterials and people using nanomaterials. It is difficult for insurers to pinpoint which

industries use potentially harmful nanomaterials, as we

don’t yet have a full understanding of the affects to health, safety

and the environment. But we ignore this potential large-scale risk at our peril, as some would say we did with asbestos.

WEATHERING CLIMATE CHANGE

Arguably the most topical issue of the moment, our changing environment, is making its way into the political arena and onto the business agendas of many organizations at a lightning-quick pace.

You don’t have to look very far for evidence of how accelerating climate change continues to affect different parts of our world. We saw in 2007 exceptionally heavy monsoon rains and floods in South Asia; severe flooding in Britain, fuelled by the wettest May to July on record; unusually heavy snowfall in South Africa and parts of South America, and swell waves up to 4.5 meters (15 feet) causing serious flooding and extensive damage in the Maldives. These extreme weather events cause a severe impact on ecosystems, human infrastructure, economies and our general well-being.

You can argue about what is causing it, but ample evidence makes any speculation as to whether or not it is a reality a non-starter. Climate change is here and now, forcing us to understand the longer-term impact and how we must help our customers adapt to the inevitable. Already water damage has become the largest cause of loss in residential insurance, a product historically designed to cover fire and theft. However, in every challenge there is an opportunity. We simply can’t afford to sit back and let responses to this issue develop around us. Instead, we must proactively look closely at the implications of our changing weather patterns and take timely and appropriate action.

There’s a new danger on the roads — a crumbling infrastructure that is deteriorating faster than it can be repaired, and at the expense of human life. It is not just London Bridge that is falling down: the tragedy in 2006 in Laval shows how close to home this issue can hit. Pipes are bursting, levies are giving way and commute times are growing considerably longer. Clearly, we have a serious infrastructure problem caused by significant underinvestment.

Are we fighting a losing battle? Recent surveys reported in the Canadian Journal of Civil Engineering estimate it would take US$9.4 billion of spending each year for 20 years just to eliminate bridge deficiencies in North America. What’s more, it would take an investment of US$1.6 trillion over five years to bring North America’s existing infrastructure into good working order.

Whether bridges or water systems, these issues are clearly going to get worse. Insurers can’t be the big pockets of last resort. If we’re the ones footing the bill for a growing number of infrastructure-related losses, then we need to be in on the discussions about funding and alternatives.

SMALL CAUSES: LARGE IMPACT

Aside from the risks outlined here, insurers must wrestle with something else: the unknown and the unknowable. Increasingly, we see small causes becoming responsible for widespread impact. One SARS tourist, for example, shuts down tourism in Toronto. One mad cow cripples the farming industry. One tree falls on a power line and brings down the Eastern Seaboard power grid. One terrorist uses a commercial jet as a missile. One teenager creates a computer virus that brings down an entire corporation.

We must be vigilant, using early-warning systems to help us prepare and tackle these emerging issues head on.

We need to show greater innovation than we have done in the past to devise timely solutions. No doubt we are obliged to take action to protect our shareholders from financial loss, but as an industry we also have a real opportunity to respond to our rapidly changing environment and create compelling value propositions to support our customers and enhance our image.