Emerging Issues - Into the land of “known unknowns”
It’s hard for insurers to get their arms around emerging risks: they come in so many different forms. All they have in common is little or no historical data with which underwriters can work with.
However, by definition, emerging risks are already known, if not quantified. So we can start thinking about their potential impact on P/C insurers and how they might affect workers’ comp, general liability, business owners and property lines.
Take hydraulic fracturing. “Fracking” is a growing form of energy exploration and there’s a lot of information on the exposures faced by drilling companies and their contractors. What’s less clear is whether landowners could be held liable for the activities faced by the driller if, for example, there’s water contamination.
Nanotechnology poses a different problem. Nanotech is big business. Sales are predicted to reach $3 trillion by 2015. But very little is known about the long-term health or environmental impacts of widely-used nano-materials. It’s good that no claims have arisen yet - but it doesn’t mean that nanomaterials are safe. As a start, insurers need to find out whether their insureds use nanomaterials.
There’s another emerging risk that sounds like something out of science fiction: a new form of malware that infects the technology used to control processes and equipment. Malware is not a hypothetical exposure and it has already disrupted all kinds of computer controlled equipment. One virus, dubbed Stuxnet, has infected tens of thousands of computers and has even destroyed nuclear centrifuges made by Siemens.
Such emerging risks are sometimes referred to as “known unknowns”. But what we know for sure is that they have the potential to develop into very significant loss scenarios for P/C insurers.
Learn more about these emerging risk issues in our Insurance Issues publication.