Canadian Underwriter

Global pandemic, food and water crisis among top ranked ‘extreme risks’

December 3, 2013   by Canadian Underwriter

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A global pandemic, a large-scale natural catastrophe and a food/water/energy crisis are the top three “extreme risks” over the long-term, according to a survey of global insurance industry executives conducted by Towers Watson.

Cyber-warfare, an economic depression, a banking crisis and a default by a major sovereign borrower also made the top 10 extreme risks in the survey.

The survey looked at rare events that would have a major impact on global growth if they occurred, Towers Watson said. Votes were compiled in a wiki survey, which allowed participants to add their own ideas and more 30,000 votes were cast, according to the consulting firm.

“Much as we would have expected pandemics and natural catastrophes to figure prominently in insurers’ extreme risk thinking, the high rankings of concerns such as cyber-warfare and a major data compromise in the cloud (user-submitted idea) illustrate how the industry is keeping up to date with risk assessment,” Stephen Lowe, senior consultant with the Risk Consulting and Software division of Towers Watson commented in a statement on the findings.

Each of the top 10 risks would have major implications for the insurance industry, in terms of affecting economic growth, creating regional insurance crises, and causing increases in mergers and acquisitions, Towers Watson notes.

The full top 10 risks, and how they were defined in the report, include:

Pandemic: A new, highly infectious and fatal disease spreads through human, animal or plant populations worldwide

Natural catastrophe: A confluence of major earthquakes, tsunamis, hurricanes, flooding and/or volcanic eruptions with major global effects

Food/water/energy crisis: A major shortfall in the supply of, or access to, food/water/energy, causing severe societal issues

Cyber-warfare: Computer sabotage/espionage on a major scale, with severe damage to infrastructure, financial, medical or defense systems

Technology: A large quantity of personal, government or business data stored in clouds are found to be hacked, compromised or misused (User-submitted risk)

Depression: A deep and protracted trough in economic output, massive increase in unemployment, restriction of credit and shrinking investment

Banking crisis: Central banks unable/unwilling to supply liquidity in the next crisis, causing banking and real economic activity to stop

An extreme event that causes property damage, supply-chain failures, business interruption and death on a significant scale (User-submitted risk)

Rise in extreme weather: Events exceed the capacity of insurance industry and governments to respond, with physical and social implications (User-submitted risk)

Sovereign default: Nonpayment by a major sovereign borrower causes market panic and disrupts the global economy

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