National Underwriter - August 15 2011

On balance, the world is far, far riskier. While workplaces, automobiles and financial institutions are safer today, there are rapidly growing risks present in cyberspace and ones evolving from the incredible instant communication available now.

Then you have something like the Murdoch issue: A brand can get attacked quickly, and the information will move all around the world. [Brand risk] is going to continue to get worse. We’re all vulnerable to the actions of one employee or a few.

And there is a tremendous flocking by people to be part of major coastal populations. People are living and working in much more dangerous locations. It’s a phenomenon that’s not slowing down. It’s accelerating.

The world is riskier, but people are ignoring the risk. The earth has been opening up around the world, for example, but still the take-up rate for earthquake insurance remains low.

Ryan is former chair and CEO of Aon Corp.

Perhaps up until the financial collapse in 2007, we had a collective underestimation of risk. While it’s tempting to think that we are now overestimating risk, that is likely not the case. Today, there is increased risk, and for the insurance industry, incremental growth will have an increased risk profile. In addition to the increasing financial and

BILL KEOGH

PRESIDENT | EQECAT

economic instability in the world, we also see the highest economic growth occurring in Asia, which is exposed to significant natural hazards. The developed world is also becoming riskier as a result of the continued economic slide. With dwindling economic resources, maintenance and mitigation will suffer. The public response to large-scale disasters may be constrained due to tight budgets.

STANLEY GALANSKI

PRESIDENT & CEO | NAVIGATORS GROUP

We live in a world today that is more technologically advanced than it was 10 years ago, more prone to climate extremes than it was and— post-financial-cri-sis—much more litigious and sensitive to a new and complex regulatory environment.

Significant risks we face today weren’t on the radar a decade ago, such as those associated with product recalls and outsourcing activities emerging in the extraordinarily dynamic life-sciences industry. The Food and Drug Administration (FDA) reported 27 new medical devices approved for public use in 2010, but, on the flip-side, the FDA also recalled 46 medical devices. Contract research organizations (CROs) help biopharmaceutical firms reduce fixed costs by outsourcing; the rising demand for CROs creates potential exposures that we didn’t see before.

Globalization creates new emerging risks also. We are all familiar with the Chinese-drywall litigation. How can a U.S. importer be assured of the

safety of foreign-manufactured products from jurisdictions that lack enforced safety standards?

New environmental-liability risks also are
emerging. With increasing national attention
on the environment, the regulatory environ-
ment is changing on a daily basis. Just last
year, there was a new U.S. EPA regulation man-
dating lead-safe construction practices.
The world’s insatiable demand
for oil has led to new risks in
offshore oil exploration and
production. Deep-water drilling
requires new technologies. Ul-
timately, we will learn about
the efficacy of these techniques
through [insurance] losses. The
financial consequences are signifi-
cant. Deep-water production platforms are
valued in the hundreds of millions of dollars
compared to the tens of millions for the old
shallow-water units.

Cyber-technology risks are evolving on a daily basis. Hacking, theft of property data and related government-imposed consumer-protection requirements have dramatically increased business exposure to claims for failure to protect data.

tainty is magnified. So if all you ever focused on was all the prevalent uncertainty, you’d definitely perceive a riskier world.

Realize, though, that there is also an amazing amount of certainty in the world, and when you focus on the certainty, you balance the uncertainty and ultimately lower your risk. Did you know that there are over 300 known cycles—business cycles, biological cycles, weather cycles—that allow you to accurately anticipate the future? For example, we know for certain that a recession, or a recovery for that matter, will not last forever. Cyclical changes like this happen all the time. Similarly, linear changes have certainty to them as well. We know, for example, that when someone gets a smart phone, they are not going back to a dumb phone. Once this type of one-way change occurs, there’s no going back. That’s a certainty!

So as you look at all the uncertain factors, you have to balance that by asking yourself, “What am I certain about?” Certainty based on both cyclical and linear changes is predictable and can give you the ability to see the future with more clarity and less risk. When you have the ability to balance the uncertainty with the vast amount of certainty that exists, you can rest easy at night.