The World Economic Forum (WEF) has published its Global Risks 2014 report, the latest update to the report where the WEF works with insurers, risk management professionals and academics to highlight the main global risks the world will face in coming years.
In total 31 different risks that are global in nature and have the potential to cause significant impact to entire countries and industries are assessed. The risks are grouped by classifications of economic, environmental, geopolitical, societal and technological and ranked in terms of likelihood and potential impact.
Extreme weather events is ranked second among the most likely global risks to occur in this years Global Risks report. Extreme weather has the potential to create systemic shock on a global scale, according to the WEF, placing it as the highest risk in the environmental category and second overall after income disparity.
Another risk of great relevance to the reinsurance and risk transfer markets which features highly is climate change, the fourth most likely and second most potentially impactful risk according to the report. Of course climate change has a strong bearing on extreme weather events and the two are together perhaps the greatest risk faced today in many ways.
Other environmental risks of relevance to reinsurance and risk transfer and highlighted within the report include, a greater incidence of natural catastrophe events and a greater incidence of man-made disaster events, both of which have the potential to cause an increasing impact as global development accelerates.
“Each risk considered in this report holds the potential for failure on a global scale; however, it is their interconnected nature that makes their negative implications so pronounced as together they can have an augmented effect,” commented Jennifer Blanke, Chief Economist at the World Economic Forum. “It is vitally important that stakeholders work together to address and adapt to the presence of global risks in our world today.”
Improved risk mitigation, risk management and risk transfer of extreme weather and natural catastrophe risks are urged by the report, with the insurance, reinsurance and capital markets assistance required. Here the reinsurance market and ILS specialists have an opportunity to take the lead and more involvement in global discussions of this nature is required to push forwards a greater use of risk transfer for these risks.
The reinsurance market is looking for growth and increasing coverage of extreme weather and natural catastrophe risks globally is possibly the best opportunity currently available to reinsurers and ILS specialists looking for new capital deployment opportunities.
The report ranks the top most likely and impactful risks as follows:
Most likely risks
- Income disparity (societal risk)
- Extreme weather events (environmental risk)
- Unemployment and underemployment (economic risk)
- Climate change (environmental risk)
- Cyberattacks (technological risk)
Most potentially impactful risks
- Fiscal crises (economic risk)
- Climate change (environmental risk)
- Water crises (environmental risk)
- Unemployment and underemployment (economic risk)
- Critical information infrastructure breakdown(technological risk)
The full report can be downloaded from the World Economic Forum website.
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