New risks and trends accentuated by the COVID-19 pandemic are emerging, but the current crisis shouldn’t overshadow the need for the world to transition to a more sustainable economy and a low-carbon future, says the recent Swiss Re Institute’s SONAR report published earlier this month.
Findings in the report say that intergenerational tensions, supply chain disruptions and the fragility of public healthcare are among the risks and trends amplified by the COVID-19 pandemic. The report also notes that the coronavirus outbreak showed that societies were not sufficiently prepared, and that broad risk awareness is crucial for proper risk management and this SONAR report flags emerging risks and fosters dialogue on this topic. It notes that the current crisis should not overshadow the need for the world to transition to a more sustainable economy and a low-carbon future, and the insurance industry can play a pivotal role in this.
The report also discusses new and changing risks in the context of long-term macro trends and turbulent times; specific topics highlighted include increased cyber risk from so-called edge computing, the boom of e-cigarettes and the lack of long-term experience with new and more sustainable building materials
According to the SONAR report says that the recession caused by the containment measures to curb the coronavirus outbreak is exacerbating longer-term structural problems, such as an increased pressure on intergenerational social contracts and disruptions to supply chains. While older generations turned out to be more vulnerable in the pandemic, millennials struggle with high unemployment and debt from education spending – putting to test the solidarity between generations. Measures such as the widespread lockdowns are causing drug shortages among other supply chain problems, and at the same time, the COVID-19 crisis is exposing the fragility of many of the world’s public health systems and the need for better risk management.
The 2020 SONAR report, published on 4 June, aims to inspire risk dialogue and foster risk awareness within society and the insurance industry, a key step for adequate risk management.
“After this global crisis, which shows the importance of forward-looking risk management, society will need to adapt to many changes, some of which will continue to linger on,” said Patrick Raaflaub, Group Chief Risk Officer at ICMIF Supporting Member Swiss Re. “As a risk knowledge company, it is our duty to raise awareness about new risks we pick up on the horizon and to continue to build resilience also in these unprecedented times.”
The pandemic experience will continue to prompt shifts in the political landscape, regulatory environment and in market dynamics, the SONAR report said. It will also bring about a refocus in priorities, as the world moves toward planning its economic recovery.
A more sustainable future post COVID-19
The COVID-19 containment measures and lockdowns may have eased pollution for a brief moment, but they will not put a halt to global warming, the report said. Therefore, the transition to a net-zero economy, where sustainability is firmly embedded in economic recovery strategies, is key.
Once the world moves out of crisis stage and toward some form of post-pandemic norm, the public and private sectors must focus on both global health and climate change, the SONAR report said. A transition to a low carbon economy presents many opportunities, but also new risks for the insurance industry, including from carbon removal schemes.
The road map to net-zero
As a starting point, the report says, all sectors of the economy need to limit and reduce emissions as much as possible, in particular the transport, agriculture and building industries. Greenhouse gases that remain need to be removed from the atmosphere through biological or technical means and then be permanently stored.
According to most climate models, lower greenhouse gas (GHG) emissions together with decisive carbon removal are needed to limit global warming to well below 2°C from pre-industrial levels. To reach that target, the carbon removal industry would need to grow to the size of the current oil & gas industry by 2050. While the carbon removal industry is still in its infancy and its scalability is yet to be proven, the estimated growth would bring a wealth of opportunities for insurance.
The transition to a low-carbon economy requires political, technological and behavioural change. Finding new ways to cope with the required changes calls for innovation and offers new opportunities for business across different sectors, and in all core areas of insurance, including in risk knowledge and risk transfer as well as investment. The insurance industry can play a pivotal role by providing specialist risk transfer knowledge and capacity to partners in other sectors of the economy.
Read the 2020 SONAR report.