Page 77 - India Insurance Report 2023- BIMTECH

India Insurance Report - Series II 65

developments keep happening across the globe. The good or bad effects from some developments are visible
over a tenure of time; along with that the slow-moving environment shifts gradually to raise the curtain
from potential risks that are developing under the carpet. These risks can emerge from products, businesses,
and policies. These are risks that are currently not fully developed, whose potential financial loss as well as
data to estimate the impact is not fully available to create a risk management strategy. Such risks are called
emerging risks. Let’s discuss a few examples of emerging risk from past and current time horizons.

In the past, risk managers have dealt with risks like asbestos cases and a surge in workers’ compensation
policies. No one was aware of the impact of such risks till they happened. Currently, climate change-
induced NAT CAT events, D&O/E&O liabilities, Cyber, Crypto, Geo-political, etc., are a few of the
developing emerging risks. New products and reports are also developing around increasing awareness of
sustainability and ESG-related disclosures. The important concern that the insurance industry has from an
emerging risk is how to reduce its exposure to such unknown risks. From past experience, it is evident that
the insurance industry has suffered a huge loss as they unknowingly covered such risks or, underestimated
such risks or failed to manage these risks. As a result, they suffered significant financial losses.

One of the challenges for the risk managers to appropriately manage these risks is that the market
may not have an understanding of such risks and, therefore, would be less open and receptive to creating
risk management strategies for these emerging risks.

2. Characteristics of Emerging Risks

Emerging risks may have one or more of the following characteristics:

- Large scale events

- Often, arise from global trends
- Often, beyond our capacity of control
- Can cross geographic borders, industries, and sectors
- Difficult to quantify the impact
- Hard to predict

- Traditional risk management identification and assessment processes may not work.

3. How to Manage Emerging Risks

Why do some people ignore emerging risks? One of the possible reasons is natural bias. Individuals
are busy and don’t want to think about things that have a remote possibility of occurring. However, a
little discipline can go a long way.

- Consider which of the emerging risks or combinations of risks have a decent chance of occurring;

- Add these risks to your risk register;
- Finally, assign the risk owners and ask them to develop response plans, including contingency
plans and fallback plans.