Terrorism, cyber-attacks among main emerging risks facing reinsurance sector

Cyber-attacks and terrorism are among the main emerging risks currently facing the reinsurance sector, according to a new report from Guy Carpenter & Company.

New compensation structures for long-term bodily injuries will also present a risk to the industry, according to Guy Carpenter, a global risk and reinsurance specialist and subsidiary of Marsh & McLennan Companies.

Its report divides current emerging risks into three categories: technological, crystallizing and aggravating.

Technological risks include those that are “genuinely new” emerging from new technologies and processes, such as cyber risks.

Cyber risks are particularly damaging as they can spread beyond a corporation to affiliates, counterparts and supply chains, Guy Carpenter notes.

Marsh estimates the U.S. cyber insurance market was worth USD$ 1 billion in gross written premiums in 2013 and could reach as much as $2 billion this year, the firm noted.

The European market is at approximately $150 million, but could reach as high as 900 million euros by 2018, based on some estimates, the report suggests.

Crystalizing risks refer to those that are “not novel but whose implications are evolving,” such as emerging compensation structures for long-term bodily injuries in the form of periodic payment orders. This is a particular issue in the United Kingdom, according to the report.

Aggravating risks are those perils that are well-known but whose impacts are becoming potentially more serious, such as terrorism.

“Uncertainty can be lurking on an insurer’s balance sheets in the form of a casualty catastrophe or an emerging and not as yet fully understood risk such as cyber,” Morley Speed, managing director of GC Securities commented in a statement on the report.

“Whatever the category of emerging risk, the main challenge lies in modeling and quantifying the potential impacts. Only in this way can insurers leverage their key capability, which is the creation of value by risk management,” he noted.