IUMI president warns of accumulation of losses around emerging risks

Insurers need to be aware of the risk of accumulation of losses around emerging risks, warns Dieter Berg, president of the International Union of Marine Insurance (IUMI). Speaking at the IUMI annual conference being held in Cape Town this week, Mr Berg said there are five main areas of risk to watch: technical, political, economic, social and environmental. The technical risk accumulation scenarios are well known, he said, citing several case studies. These include the risk of an oil tanker colliding with a cruise ship, resulting in $4.2bn of losses, or the sinking of a 4000-passenger cruise ship at a loss of $4.5bn. More expensive is the risk of a major oil platform loss, at around $10bn, or a natural catastrophe hitting a LNG plant off the cost of Australia, with a build cost of $12bn and insured cover of about $6bn. In terms of emerging risks, Mr Berg said, the whole industry is watching the development of autonomous vessels carefully. He suggested there will be two stages – the first in which the ship is controlled remotely and then the second stage in which it is fully autonomous. Mr Berg said he was not sure the fully autonomous vessel would emerge anytime soon because of the enormous cost involved, but added that insurers need to keep on top of the possibilities. Autonomous vessels and hugely expensive equipment are also being used to develop deep-sea mining. With huge stores of copper, gold and rare earths below the oceans, mining houses are increasing using new technology to reach the deposits. Closer to home, Mr Berg sees the use of technology as a direct threat to the way insurers traditionally operate, but he believes it also provides an opportunity to cover the new ways of doing business. He pointed to the growth in the need for cover for Airbnb owners, for example, and also the growing use of affinity groups to buy insurance, such as the group of some 23,000 dog owners who now buy insurance through such a scheme. Political risks, meanwhile, include terrorism. Mr Berg said: “We expect to see more low-intensity terror attacks but the transport system can still be targeted. “At Munich Re, we looked at the risk, for example, of a dirty bomb in a container terminal. The risk was much higher and more expensive than you might imagine,” he warned. On the wider political scene, Mr Berg said the risk of failed states is a real threat to the maritime sector, while regulatory change remains a risk, along with political disruption leading to changing global trade patterns. “The US poses a question mark on the global economy and political order,” he said. There are plenty of emerging economic risks for the insurance market to grapple with. These, said Mr Berg, include the strengthening dollar, which is negatively impacting emerging economies struggling to repay debt. Economic risk also includes the failure of major corporates. He cited the example of a collapse at Maersk, which would be a systemic risk for global trade. On top of that, he said, people are also worrying about whether their jobs will still be available in a few years’ time – or whether the machines will have taken over. While he said many jobs could be automated, not everything will be. However, it could lead to social change, instability and even political insecurity going forward, unless it is carefully monitored and risk managed. Mr Berg pointed to Venezuela as an example in which political uncertainty has led to a surge in crime, particularly piracy. He suggested all insurers identify these types of risks and keep mapping the potential loss scenarios. “Use risk management tools,” he said, “and become innovative. Emerging risks are by definition new or unknown so we have to use innovative ways to manage these risks. “Think outside the box and innovate,” he urged.

IUMI president warns of accumulation of losses around emerging risks

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