London, UK (Jan. 16, 2015) – A new report from the World Economic Forum identifies the biggest risks facing the world – and the important role insurance can play in mitigating them.
International conflict is the biggest threat to world stability in the next ten years, according to the 2015 edition of the Global Risks report published by the World Economic Forum (WEF). The annual report, which condenses the views of 900 experts, is released in advance of the World Economic Forum meeting in Davos (January 21-24).
Interstate conflict with regional consequences – or asymmetric war – is the number one most likely risk and the fourth most serious in terms of impact. Extreme weather events and climate change is ranked in second place in terms of likelihood, followed by failure of national governance systems, state collapse and high unemployment.
In terms of potential impact, water crises is rated the greatest risk facing the world. The other high impact risks include disease pandemics, weapons of mass destruction and failure of climate change adaptation.
Launching the report in London, WEF’s panel agreed that 2015 stands out as the year when geopolitical risks returned to the fore, having been in the background for the last five years. “Twenty five years after the fall of the Berlin Wall, the world again faces the risk of a major conflict between states,” said Margareta Drzeniek-Hanouz, WEF’s lead economist. “However the means to wage such a conflict, whether through a cyber attack, competition for resources or sanctions is broader than ever.”
Climate climbs the agenda
Risks to the environment outnumbered economic threats in the report this year, with experts negatively assessing the preparations in place to cope with extreme weather and climate change.
Three of the top ten risks in terms of impact over the next ten years are environmental risks: water crises, failure of climate-change adaptation as well as biodiversity loss. The report cites forecasts that global water requirements could exceed sustainable water supplies by 40% by 2030. Water scarcity will impact more strongly on food production in the future and could even spark interstate conflict, the report warns.
The WEF report stresses the cascading effects that could result from the interconnection of risks. Increasing urbanisation is a danger for different reasons, for example, the report says, noting that by 2025 two thirds of the world’s population will live in cities. Too rapid urbanisation will touch all risks, exposing vulnerabilities to do with pandemic disease, infrastructure and utilities. Also, many of tomorrow’s mega cities will be located in coastal areas that are prone to flooding and in the so called ‘ring of fire’ belt of earthquake epicentres.
Interconnected risks resulting from the rapid pace of innovation were highlighted by John Drzik, president of global risk and specialties at Lloyd’s broker Marsh. “Cyber is the most visible example and serious vulnerabilities have been highlighted just recently. The cost of cyber attacks is estimated now at $400bn annually,” Mr Drzik said. “That’s equal to the GDP of Thailand.”
Bio hazards multiply
Other emerging technologies that pose new socio-economic threats include synthetic biology, which is increasingly used in medicine, food production and bio-fuels, according to Mr Drzik. Innovation is critical to global prosperity but synthetic biology presents new hazards, he said, reiterating the interconnection of risks, this time to do with “bio-error and bio-terror” and lack of adequate governance.
Nanotechnology and artificial intelligence are other emerging technology risks that could have far reaching socio-economic risk implications, the report says.
Speaking to Lloyds.com on the sidelines of the WEF press conference, John Drzik said that insurance will help to mitigate the financial effects of many of the socio-economic risks identified.
But insurers can also contribute to the development of public/private partnerships that strengthen risk resilience. “The insurance industry has a strong role to play in enforcing common standards that help improve risk assessment and management, from cyber security to flood defences, for example,” he said.
Lloyd’s regularly publishes reports on emerging risks themes related to the climate, society and security, as well as technology.
Lloyd’s is the world’s specialist insurance market and occupies fifth place in terms of global reinsurance premium income, and is the largest surplus lines insurer in the US. Lloyd’s is authorised under the Financial Services and Markets Act 2000 and regulated by the Financial Conduct Authority and Prudential Regulation Authority.