The Big Question: What do you see as the top emerging risks for business in 2023 and why are they important? With Kate Corby, Emerging Risks Manager, AXA XL
This week we are delighted to focus on an area, which has been a board-level requirement for insurers for some time and is now moving increasingly into the operational arena: quantifying emerging risks.
We speak to Kate Corby, who has taken up the newly created role of Emerging Risks Manager at AXA XL – a fact which in itself demonstrates not only the importance the insurer places on the management of these risks but also the increased focus on emerging risks across the industry. As Corby explains, managing the insurer’s emerging risks framework begins with identifying those potential emerging risks, but there is then a need to understand and analyse them so they can be prioritised based on their potential impact. Given that emerging risks are continually evolving, it is also important to have a framework to continually monitor these risks and report internally on those that could have an impact on existing and future product offerings and business operations, as she explains in this fascinating insight into the key emerging risks for business in 2023.
Ian Summers, Global Business Leader, AdvantageGo
There are several ways in which AXA XL considers emerging risks, according to Corby. There are ‘true emerging risks’ – which are new and that we need to learn more about. With these, we need to look at the science and research and monitor them to see how they evolve and consider whether action is necessary in the near to medium-term. But then there are the emerging risks that are already known but that are changing and evolving and for which the impact and likelihood are not yet fully understood.
She says that these different categories of emerging risks need to be managed in different ways depending on their state of emergence. Part of the challenge is also to define when an emerging risk has fully emerged and, if so, whether it no longer needs to be monitored or whether the risk has emerged, but still needs to be monitored as part of the wider underwriting or operational risk framework.
So, what does she see as the top emerging risks for business in 2023, and why are they important?
“With the advancements in Artificial Intelligence, quantum computing and the Metaverse, we are seeing more focus on technology-related risks, as well as geopolitical and societal risks driven by the current macroeconomic environment. The most recent AXA Future Risks Report revealed that climate change is still the top risk, according to risk experts, followed by geopolitical instability, which has overtaken cyber and pandemic as a priority for risk professionals since last year’s survey. It is important for us to consider the interconnectivity between these risks; we see geopolitical tensions causing supply-chain issues and the risk of cyber-attacks, and economic risks are becoming more serious and fuelling social tensions.”
Corby adds that there are various ways in which insurers can help their clients understand and manage the key emerging risks on their radar: “Raising awareness of emerging risks is key and this can be done in many ways, for example, through thought leadership and broker seminars. At AXA XL, we produce thought leadership articles, which cover a wide range of topics by industry, business product and risk and are intended to raise awareness and provoke discussion. A couple of recent articles produced by our Risk Consulting team covered the emerging risks associated with microplastics and meat substitutes, for example.
We also promote an emerging risk culture within our organisation, partnering with business stakeholders, providing emerging risk reports, presentations, and podcasts so that our colleagues are well informed on emerging risks topics and equipped to help work with their clients to manage these risks.”
Much has been made in the wider media of the importance of accurate data when it comes to the underwriting of emerging risks, and here Corby agrees, noting that data is central, both for underwriting your emerging risks and existing risks, as is a thorough understanding of policy wordings and of regulatory and legal requirements, so that you can truly understand your exposure:
“Emerging risks, by their very nature, may be poorly understood, so to fill those knowledge gaps, we must gather as much information as possible so that the opportunity and risk can be considered and underwritten where appropriate. We need to always keep in mind that these risks are constantly evolving and changing with the economic and social environment, and therefore need to be continually monitored.”
Does she feel that the market is doing enough to identify the emerging risks of the future- should there be more resources available for research?
“We have seen a huge uptick in emerging risks studies and research over the last couple of years and there are some really great resources out there, like the World Economic Forum, the CRO Forum and the Eurasia Group, as well as emerging risks studies from some of the large brokers and reinsurers.”
“The AXA Future Risks Report 2023 identified the need for the insurance market to engage with public stakeholders to explore potential public-private partnerships to deal with emerging, systemic risks like cyber, for example. Collaboration will be crucial to find solutions for some risks, for example, those that arise from climate change.”
“My experience within our organisation is that gathering views and expertise from across a broad spectrum of the business is hugely beneficial in monitoring emerging risks – and the same could be said for similar collaboration across the market. We also work with external companies and academia to research risk. Most recently, we collaborated with the University of Cambridge to research and develop tools to ultimately improve resilience to water-related risks for clients and the wider public.”
“I think it is the responsibility of all insurers to invest some resource into identifying and managing emerging risk so that appropriate action can be taken to mitigate the risk or to take advantage of potential opportunities.”