Most Dangerous Emerging Risks

This is the first of an annual report identifying emerging risks not on everyone's radar screen. Some are known risks with unanticipated outcomes that could be game changers if they occur.

By PAUL BOMBERGER, Editor-in-Chief of Risk & Insurance®

An earthquake and tsunami rocking Japan is not an unexpected event. However, the 9.0 magnitude of the recent quake, then the 20-foot-plus tsunami that scaled sea walls along the coast to cripple nuclear reactors, and cause a harmful radiation release was much more than anyone anticipated.

Access All 10 Most Dangerous Emerging Risks (05/01/11)

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As the world becomes more interconnected and developed, new risks emerge, while existing risks morph into more dangerous ones because of miscalculated frequency rates and/or severity potentials. For example, the unanticipated severity of the quake in Japan ravaged the region partly because of inadequate sea walls, but also reverberated around the world through supply chain interruptions.

Our May cover story package reveals our 10 most dangerous emerging risks. (Read about the first emerging risk, phantom business interruption.)

This is the first of an annual special report identifying the top risks that are not on everyone's radar. Or these could be known risks with unanticipated outcomes. More importantly, when these emerging risks such as disrupting the electrical grid from a solar storm or polluting groundwater from natural gas drilling become real events, they are game changers for risk managers and commercial insurers.

Despite the magnitude of unanticipated events when they occur, the risk management and insurance industry doesn't always pay attention long enough to make groundbreaking long-term changes in how they do business and what insurance products they offer.

"Most people's attention spans are short'' and so after a few months they move on to the next risk or event, said Howard Kunreuther, professor and co-director of the Wharton Center for Risk Management and Decision Processes, at the University of Pennsylvania. "The recent Japan earthquake provides an opportunity for undertaking long-term strategies for managing risks and overcoming our myopic behavior.''

To identify our most dangerous emerging risks, we focus on the drivers which are the latest trends within macroeconomic parameters such as technology, energy, the environment, globalization and regulation. We know risks usually emerge because of unintended or unanticipated consequences in those areas.

Regardless of geography or economic sector, a substantial event often results in significant effects on business and commercial insurance.

Given this new reality, risk managers have much less room for error. Not only is preparedness of the utmost importance given the speed of information, identifying sources of new risks is crucial.

In assessing emerging risks, "the challenge is how to do that effectively,'' said Richard S. Betterley, president of Betterley Risk Consultants Inc. of Sterling, Mass. "How do we think about the things we haven't thought about before?''

To help with that, we talked to a cross-section of leaders from commercial carriers, brokerages, risk consulting firms and universities to help our editorial team determine our 2011 most dangerous emerging risks. We presented each of these risk articles with a theoretical scenario followed by enterprise reporting and analysis.

Read here about all our 10 most dangerous emerging risks.

May 1, 2011

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