Recognising the critical role of technology in risk management

Technology giveth and technology taketh away. The development of digital technology and the rapid advancement of artificial intelligence (AI) have created multiple benefits, such as increased processing speed and the ability to execute complex calculations. But technology has also created new risks while accelerating old ones.

Data breaches, to mention one, are increasingly costly, especially for the healthcare sector. According to Swiss Re research, the average cost of a data breach for a healthcare provider had risen to $11m in the first three quarters of 2023.

Companies are also more concerned about cyber risk, with the majority seeing it as their primary threat. Concern has risen ever higher amid the current geopolitical tension, with state-sponsored actors unleashing viruses, orchestrating cyberattacks and spreading misinformation. Consequently, global cyber premiums are forecast to reach $25bn by the end of 2026, a near-doubling of the $15bn in 2023, according to Swiss Re research.

The concern is shared by regulators. The UK’s banking supervisor, the Financial Conduct Authority (FCA), is set to introduce new operational resilience rules for the country’s financial institutions.

The new policy, due to take effect in April 2025, requires firms to develop and review operational resilience frameworks, including mapping risks to operations posed by third-party services. According to the FCA, the most effective operational resilience frameworks are embedded within firms’ enterprise-wide risk management, including strategic planning and change management.

But according to Hall and Swiss Re Corporate Solutions, digital technology is also the best hope of making sense of the current polycrisis facing corporates in the UK and elsewhere.

He points to the example of driverless cars that use advanced driver assistance systems to monitor the changing risk environment at all times. Research carried out by the Foundation for Traffic Safety in the US suggests that the technology could prevent more than 14 million injuries and 250,000 deaths by 2050.

According to Hall, the insurance industry could benefit by using the same approach to risk management – i.e. deploying continuous digital monitoring to identify, model and mitigate risks. “It is about identifying risks before they happen and then mitigating those same exposures,” says Hall.

Swiss Re Corporate Solutions has adopted a similar approach to its own risk modelling, using digital technology to map exposures, simulate scenarios and analyse the impact on individual assets in granular data.

Furthermore, the company has taken this internally developed technology and made it available to clients, in what is an industry first of sorts. Risk Data & Services creates a digital twin for clients that they can use to run their own stress tests while respecting data privacy and governance concerns.

“This means that the data ultimately belongs to the client and they can choose to share it with us or with a competitor in order to develop an industry-wide perspective,” says Hall. “At the moment, there is still some unease over sharing data and especially around risk data. But the demand for data is rising, and over time that taboo of sharing data will likely subside.”

Swiss Re is also using digital technology to boost operational services, both internally and for clients. For example, the digitisation of claims handling could cut loss adjustment expenses by up to 25% and general expenses by 20%, according to Swiss Re estimates.

But the most profound impact of digital technology lies in its ability to simulate scenarios and model risks. According to Hall, this could enable the insurance industry to move beyond offering pools of capital to repair damages to a ‘resilience-as-a-service’ model that uses technology to identify risks before they become losses.