Many risks are evolving and spreading
more quickly as a result of globalization.
We have faced natural catastrophes and
pandemics for centuries, but risks have
been heightened by our increasingly in-terconnected and interdependent world
and are spreading faster and further,
jumping from one industry or country
into several countries or sectors.
EXECUTIVE VICE PRESIDENT
WILLIS RE INC.
PRESIDENT & CEO
KAREN CLARK & CO.
The world is getting more risky because
of ever-growing concentrations of exposures: Growing
concentrations of property values
in coastal areas allow hurricanes
to cause more damage. Massive
databases of personal information
controlled by a small number of
companies mean that one security breach can impact hundreds of
millions of people. Major financial
institutions focusing decisions on
complex and opaque computer models means that one faulty model assumption can bring large segments
of the financial system down.
Clark is founder of the first catastrophe modeling firm, Applied Insurance Research (AIR Worldwide).
HEAD OF GLOBAL ADVISORY | GUY CARPENTER
It’s definitely becoming more risky. If you look at what’s hurt
U.S. insurers in particular, it’s been a frequency of severity—
not named storms, but flooding and tornadoes. And it’s a
preponderance of earthquakes throughout the world: It was
not a single earthquake that hurt Christchurch. It was the
fact there were so many. Weather and geological phenomenon becoming more volatile is the No. 1 risk.
No. 2 is there’s much more interconnection—economic
linkages, in particular. Based on recent travels to Europe and
China, I can tell you the U.S. creditor nations were far more
worried than the United States about the United States possibly being downgraded or defaulting. This is right out of the old
adage, “If you owe your bank $1 million, you have a problem.
If you owe your bank $100 million, they have a problem.” The
days of unilateral economic policy are going away.
Third are the knock-on effects of seemingly isolated
events. One example was Deepwater Horizon. Beyond the
immediate damage to the rig, industry shutdown all around
the Gulf had orders of magnitude more impact. You had
thousands of miles of coastline that were impacted by
tourism, and shutdowns of fishing industries in Louisiana,
Alabama and Mississippi.
The upshot: Don’t look at just the immediate proximate cause.
The width of the effect is growing in our world. The damage to
From a legal perspective there does not
appear to be any shortage of risk that
will continue to drive insurance needs.
For example, cars are safer in very significant ways, but the opportunity for
massive financial risk from manufacturing and design decisions is perhaps
greater today than ever. The recent
Toyota “sticking-accelerator” problem
led to class-action lawsuits and recalls.
Environmental disasters continue to
present huge risk, leading to lawsuits
not just for the harm to local communities, like love Canal, but also to huge
geographic regions, as was the case
with the Exxon Valdez and the more
recent Bp oil-spill disasters.
At many levels society is safer, but with
a world economy and the expansion of
markets, the risks that must be managed
are often more complicated and expensive.
Japan from the Tohuoku quake was severe, but the supply-chain disruption for a wide range of industries was shocking.
Just-in-time manufacturing really is translating to extremely fragile supply chains that can be halted from very
far-off geographies or very far-flung industry or political
events that just weren’t contemplated in risk management.
The world is becoming much riskier.
Supply chains are longer and more complicated than ever. In
the old days, the supply chain went from
the Northeast to the
South. Then it went to
Mexico. Then it went
over to China. Now it’s
in India, it’s Vietnam,
it’s all over the world.
August 15, 2011 | National Underwriter Property & Casualty | 21