The risk landscape is becoming more complex and there are growing, emerging and intangible risks, together with new risks and changing protection needs, presenting insurers with a significant opportunity, concludes a special report from rating agency AM Best.

But among the report’s principal takeaways includes the observation that quantification of potential casualty accumulations is one of the most complex exposure management challenges insurers face.

In a trend review for January, Best says innovation can help insurers to develop sustainable competitive advantages and better respond to external challenges such as evolving consumer preferences, growing business complexity, shifting market dynamics and expanding technological advancements.

The report states: “Over the past decade, environmental, technological and social trends have driven the rapid evolution of the global risk landscape in which insurers and their policyholders operate.

“Risks are becoming more complex and interconnected, and emerging and intangible risks (such as cyber, non-damage business interruption, regulation and reputation) are growing.

“Meanwhile, changing climate trends and higher concentrations of assets and lives in vulnerable areas are increasing the costs associated with natural catastrophes.

“The Covid-19 pandemic also has provided a clear demonstration of how interconnected global risks have become, and has served to accelerate existing trends affecting the risk landscape such as digital transformation and the shift to business models based on intangible assets.

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Global Reinsurance -- Evolving Risks Trend Review -- January 26, 2022.pdf

“It has also served to increase risk awareness, highlighting the importance of risk mitigation and management, and has exposed protection shortfalls. All of these factors have potential implications for insurance demand.

“AM Best believes existing coverage gaps, as well as new risks and changing protection needs, present a significant opportunity for insurers.

“Addressing these protection gaps through new and innovative products and risk management solutions will be critical to the industry’s success and relevance over the longer term.

“But, in an increasingly digital and connected world, there is higher potential for significant accumulation of risk.

“As the risks presented by individuals and businesses evolve, AM Best believes insurers’ understanding of risk drivers and their potential for accumulation must also evolve, if they are to maintain financial strength.”