Moody’s has identified 10 emerging threats it says are poised to reshape the global risk landscape for insurers next year and beyond.

“Insurers are on the front line in deciphering an ever-complex landscape, where new risks are developing and established perils are changing,” the ratings and data group’s chief research officer Robert Muir-Wood said.  

“From the costs of living in risky ‘paradise’ locations to evolving environmental threats, these risks are critical for insurance companies and businesses to understand and address as we navigate an increasingly interconnected and complicated future.”

The rising cost of paradise

Moody’s says insurers need to “fully understand” changing risks such as rising sea levels or intensifying weather events to cover those living near the ocean, rivers, forests or mountains. 

Insurers and communities “will ask whether it continues to be worth building and living in desirable but risky locations, as living in paradise comes at an increasing price”.

Supply chain breakdowns

Wide-ranging business impacts related to supply chain disruptions “continue to be a developing area of concern for insurers”, as potential losses can arise from the most unlikely of situations.  

“Five years later, the effects of the Covid-19 pandemic are still being felt; global conflicts such as the Ukraine war and the Houthi attacks in the Red Sea lead to disruption, delay and diversion in trade routes around the world,” Moody’s says.

Pandemic potential

In a world still weary after the Covid-19 pandemic, Moody’s says it is understandable that the appetite for effective surveillance of emerging viruses has faded.  

But it says avian influenza “remains a significant pandemic risk, gauged by how far each strain advances towards the human branch of the evolutionary tree.

“If this trajectory continues, the virus could combine its original high fatality rate with efficient human-to-human transmission, a scenario that would sharply elevate global public health stakes.”

Wandering wildfires

Fire seasons are extending across the US and around the world, including in regions not renowned for wildfires.

Optimal wildfire conditions, including drought, low humidity, vegetation build-up and hurricane-force Santa Ana winds, led to 14 wildfires burning more than 23,000 hectares and destroying 16,000 structures in Los Angeles County in January this year. 

Insuring nature

Embracing nature as beneficial and constructive – rather than obstructive to development and the built environment – can pay dividends by providing evolving and sustainable solutions, Moody’s says.

For example, mangroves reduce the height of wind- and swell-waves passing through them by up to 66%, causing them to lose energy and reducing their ability to erode sediments and damage structures. Coral reefs and salt marshes also help reduce wave height, and trees in cities can cool urban heat islands.

“Insurers taking into account the benefits of natural defences – as well as the escalating cost and culpability of companies that are polluting and damaging them – can both mitigate against risk and help protect the environment.”

Fast floods

Intense rainfall is escalating in frequency and severity – with daily rainfall records across the world having occurred 52% more often last year than in 2000.

Even desert regions have become flood zones. The United Arab Emirates saw 254mm fall on April 15 last year. About 18 months’ rain fell in a day at Dubai International Airport, causing 1244 flight cancellations.

Gathering clouds

In July last year, the CrowdStrike outage swept the world, directly affecting critical industries such as transportation, banking, healthcare and public safety – and alerting everyone to the enormous risks associated with cyber incidents, whether accidental or malicious.  

“While this incident seemingly came out of nowhere, the reality is that business-impacting incidents that originate with third-party vendors or partners, including those generally unknown outside of IT circles, are an increasingly common occurrence,” Moody’s says.

High-risk high-rises

Almost 60% of the world’s population live in cities, and rapid urbanisation in developing countries is leading to an increase in risky building practices, Moody’s says.

“Insurers, in partnership with regulators and other stakeholders, can have a role in engendering risk-reducing behaviours in this sector.”

Chemicals forever

From food packaging to clothes and carpets, per- and polyfluoroalkyl substances (or PFAS) – a group of about 15,000 synthetic chemicals known for their water, heat and stain-resistant properties – have been in our lives, and blood, since the 1950s.  

“Regulatory standards are tightening, and litigation is accelerating, with more than 17,000 lawsuits in the US alone,” Moody’s says.

“In a litigation environment that’s led insurers to apply broad PFAS exclusions that may limit their growth opportunity, data-driven differentiation of PFAS risks will be key to navigating this complex risk – and capturing new growth.”

Pervasive plastic

Microplastic is everywhere – in the air we breathe, the food we eat and the water we drink.  

Scientific research to date links microplastic exposure to at least 10 types of bodily injury, including hormone disruption, brain injuries and developmental injuries.

“As measurement methods improve and studies accelerate, the potential for mass tort litigation and regulatory interventions grow in parallel, requiring insurers to urgently address the potential for liability accumulation, as it mirrors past systemic risks seen in tobacco, asbestos and PFAS,” Moody’s says.

“This is more than an environmental story – this is an emerging frontier of future liability and casualty insurance.”