Risk Management Now
What does the exposure management team do?
We have a database that covers over 370 risks, from nanotechnology through climate change. We have a team investigating what the next type of big threat could be—the next asbestosis—that could hit the insurance industry. We help underwriters be smarter about pricing risk and provide information that can help them tighten the wording of contracts, so if there is a potential risk it is being mitigated or accounted for.
Part of the team designs and implements a Realistic Disaster Scenarios framework—large stress-test scenarios, and what the impact could be on Lloyd's. There are 20 scenarios, including a hurricane that hits Florida and costs the industry over $120 billion, planes colliding over a heavily populated city, and an earthquake in Tokyo.
What are some emerging risk areas?
We're starting to talk to underwriters and academics about synthetic biology where you create your own organism, combining cells with different strains of DNA. There are no distinct regulations for this activity. We're looking at how it could impact business, implications for terrorism or for human error if a product is developed and rushed to market, the risk of unexpected gene transfer, the implications on different ecosystems.
Digital risks are another area. We started to see a shift from viruses that typically attack computers to different types of cybercrime. For example, if you have heavy machinery managed and maneuvered by a global positioning system that has been tampered with or hacked, there is a potential risk.
Among emerging natural risks, what are you focusing on?
There's space risk. There is a solar cycle, which is a period of about 11 years. It's the sun having a cycle in terms of how much electromagnetic radiation is emitted. We're entering a period of slightly elevated activity. The peak activity will be seen between 2011 and 2013. Electromagnetic radiation in space could impact satellites, but there are also "on earth" risks to ground stations, in terms of providing electricity for networks or grids that supply power to cities. A widespread, prolonged failure of electricity transmission grids would feel like going back in time to the 17th century.
And in climate change?
In the area of climate change and potential liability, Lloyd's is working with academia to better understand potential impacts. There are difficulties, particularly in differentiating the impact of natural variability and man-made impacts—and the differing impacts of greenhouse gases. Climatic changes don't mean there will be global warming—there will be distinct regional variations. Our research is shared with underwriters to help them be aware of issues.
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