Financial repression in emerging markets key risk to insurance industry

Financial repression, turmoil in emerging markets and increased localisation of internet networks within country borders are some of the main risks identified by Swiss Re in its latest SONAR report.

Turmoil in emerging countries could hinder the market entry and the penetration strategies of global insurance companies and even result in higher underwriting losses, especially in property, personal and commercial lines, for example in the case of riots – according to the report.

Swiss Re also discovered that the long-term costs of negative interest rates and unconventional monetary policies are still unknown, yet they might lead to a broader loss of confidence in the monetary system.

The data suggests short-term benefits are limited as the policies are unlikely to boost economic growth.

Firewalls, special software to filter out unwanted information and isolated IT infrastructure detached from global networks and disconnected nets could soon become a reality, according to Swiss Re.

“Their potential impact includes increased costs and disrupted business models for insurance companies and other businesses operating across borders,” said Swiss Re.

The report is based on the SONAR process, an innovative crowdsourcing tool drawing on Swiss Re's unique internal risk management expertise to pick up early signals of what lies beyond the horizon.

The publication offers insights into emerging risks, those newly developing or evolving risks whose potential impact and scope are not yet sufficiently taken into account. Among these, it also highlights a ‘crisis of trust’ in institutions, the ‘legal and pricing risks of the sharing economy’ and technology-related topics, such as the rise of ‘precision medicine’ and ‘distributed energy generation’.

The identified risks are relevant to life and non-life insurance areas and are presented with the goal of helping industry players prepare for new scenarios by adapting their behaviours, market conduct and product portfolios.

Swiss Re state that detecting early signals of looming threats allows for a proactive approach to risk mitigation and is an important step to help society as a whole to become more resilient.

Patrick Raaflaub, chief risk officer, Swiss Re, said: "Risk management is not just about managing risks in the present. It is about anticipating future ones to make sure we will be in a position to deal with them,

“These risks may only fully reveal themselves to future generations. That doesn't mean that we shouldn't act today to reduce uncertainty and alleviate their burden."