By Dan Reynolds
The events of 2011 and 2012 reinforced the maxim that the world of risk is ever-expanding.
After the earthquakes and floods of 2011, for example, business leaders found that they knew less about their supply chains than they thought. Understanding and managing supply chain risk is now much more daunting due to new information about the exposure's scope and complexity.
With the perspective of another year, as nettlesome as supply chain risk is, there may be emerging risks that are equally dangerous. Just look at what we're seeing in 2013.
Two areas to worry about are cyberrisk and climate change, which are growing to intimidating proportions.
In a specific category of cyberrisk, as more and more companies store data on the cloud, the coverage issues and exposures in data storage and management are harder to evaluate. Fears about state-sponsored cyberattacks are adding to business leaders' fears in this area.
On the one hand, many cloud providers don't know the type of data customers might have stored on their servers. On the other, should an attack occur, a cloud storage provider or their customer might not know the source of the attack or the value of what was taken.
Still, one could confirm that a customer's privacy was compromised. In that case, who bears the burden of liability?
Climate change is turning out to be everything risk managers hoped it wouldn't be. For years, modelers saw a hurricane that would strike the Northeast, New York City specifically, as a "Black Swan" event. That is, an event could happen very rarely but have enormous consequences.
But a storm surge that would impact New York, Boston or Philadelphia is no longer considered a one-in-100 chance. It is now likely that a damaging Northeastern storm surge could occur more frequently.
Scientists report that that the Gulf Stream is slowing down due to warming sea water. The slowing of the stream will raise coastal ocean levels in the Northeast, which will increase the height of storm surges.
Climate change also impacts the frequency and intensity of droughts and wildfires, as Risk & Insurance® Senior Editor and Web Editor Jared Shelly reports in another of our emerging risks stories.
Nine million acres were burned by wildfires in the U.S. in 2012. That number can be expected to go up, not necessarily next year, but in coming years due to the increasing frequency of droughts stemming from a warming planet.
As fire risk spreads, the risk increases that wildfires will strike urban areas. Cities are built out these days, not up, increasing the risk that wildfires will consume more and more insured property.
This annual report presents our selection of the most dangerous emerging risks in two parts. The scenario is a fictional, yet realistic narrative presenting a possible outcome from a dangerous emerging risk. We then conduct an analysis of each scenario which looks at the risk more broadly and in some cases argues the feasibility of various outcomes.
DAN REYNOLDS is managing
editor of Risk & Insurance®. He can be reached at firstname.lastname@example.org.
April 12, 2013
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