This article was originally published with permission from Reactions.
What are the major risks that will impact the global re/insurance industry in 2018? That was the question Reactions posed to some of the global re/insurance market’s senior and well placed figures.
By Nigel Mortimer
President, Argo Insurance
Three words come to mind.
Predictive climatology suggests that hurricanes, earthquakes, droughts, fires and floods will increase in both frequency and magnitude. As claims mount following catastrophes, rates will rise and coverage will contract.
It’s been surprising to see how quickly the capital markets reloaded after 2017, despite the $100bn-plus losses in the wake of hurricanes Harvey, Irma and Maria, the earthquake in Mexico and the fires in California. As capital persists, the pressure on pricing will too, especially in reinsurance markets and even as London reinvents itself.
In 2018, we’ll see some capital investors swing away at last, as the size, latency and longevity of the risks propel them to seek more predictable profits elsewhere. Rates may then rise to reflect the true risk prudently.
Cyber is unique in that the risks are both unlimited and perpetual. Digital attack and defense are opposing forces in a war of escalation, with solutions such as blockchain in turn becoming prestige targets for hackers eager to make their mark. While we can sense the scale of the problem by examining assaults, such as those against Merck, we have no idea of the possible impact of new hacking technologies against multiple, smaller entities.
Imagine the losses following concurrent attacks against one million small businesses, the shut down of every self-driving car, or perhaps just the bricking of every digital door lock. The payouts could be massive, and yet today’s premiums for those small-scale customers in no way reflect the scope of the risk, precisely because we don’t know what that scope is. On the other hand, because the digital arms race will be perpetual, cyber offers our industry the best opportunity we’ve seen since the advent of shipping.