Liz Booth examines how the most signiﬁcant risks could impact the insurance profession in 2022
It is perhaps no shock that the World Economic Forum’s (WEF) Global Risks Report 2022 puts Covid-19 at the top of its list of risks for this year. However, respondents to the WEF study are not concerned about the pandemic in a medical sense, but in its broader societal consequences.
The challenge for insurers in 2022 will be in engaging with clients and ensuring they are aware of these emerging threats to their businesses and themselves as individuals. The key will be in encouraging greater resilience to face these future shocks.
In its report, the WEF says: “Respondents noted that societal and environmental risks have worsened the most since the start of the pandemic, with ‘social cohesion erosion’ and ‘livelihood crises’ taking the top spots.”
It notes that only 11% of respondents thought the world would be characterised by an accelerating global recovery towards 2024, while 89% perceived the short-term outlook to be volatile, fractured or increasingly catastrophic.
Eight out of 10 respondents expressed negative feelings about the future – that is, they were ‘concerned’ or ‘worried’. Pervasive pessimism could create a cycle of disillusionment that makes galvanising action even more challenging.
Social cohesion erosion, livelihood crises and ‘mental health deterioration’ were identified by the WEF as three of the five risks seen as the most concerning threats to the world in the next two years.
It also points out that environmental risks – in particular, ‘extreme weather’ and ‘climate-action failure’– appear as top risks in the short-, medium- and long-term outlooks. Respondents signalled that environmental risks have the potential to yield the most damage to people and the planet, followed by societal challenges.
Various UK law firms have also been producing annual risk forecasts for the year ahead. Simon Laird, global head of insurance at RPC, says: “As we go into 2022, coronavirus and its fallout are, unsurprisingly, still front of mind for insurers. The risk of emerging variants and prospect of further restrictions will create practical as well as pricing challenges. We are yet to feel the ripple effects from Covid-19, or maybe more accurately, the government’s response to Covid-19, such as losses arising from protests, furlough fraud and insolvencies.”
Meanwhile, lawyers at DAC Beachcroft are also warning of civil unrest due to Covid-19 restrictions, pointing to protests over lockdowns, as well as the economic impact of the pandemic in European countries, including Belgium, the Netherlands and Austria. They suggest political violence and property underwriters would be looking to select risks with particular caution.
But, as the WEF report also suggests, it is not purely about Covid-19. RPC’s Mr Laird explains: “In addition to Covid-19, insurers continue to grapple with ESG and what it means for their business from a purpose, risk and opportunity perspective. We expect this to continue at pace through 2022 and to edge out Covid-19 as the dominant topic for the year ahead.”
Helen Faulkner, global head of insurance at DAC Beachcroft, believes: “There is a significant overlap in ESG issues that we are seeing emerge, which highlights a sweetspot on which to focus our attention in the year ahead to create a resilient [insurance] industry of which we can all be proud.”
The predictions from DAC Beachcroft question whether the COP26 climate change summit in Glasgow provided the impetus to move the rhetoric into action and warn of new exposures that D&O insurers will face as the UK moves towards mandatory ESG reporting.
The lawyers also anticipate that climate-change activists will increasingly turn to the courts to make companies comply with existing law and regulation.
With climate change continuing to cause severe flooding, the question becomes: who should provide the cover for those vulnerable communities most affected and least able to pay for protection?
“Is it society, the insurance industry or government? Or is it a combination of all three?” ask the DAC Beachcroft lawyers.
Class actions are also predicted to build across the world this year, with expansion of the litigation funding market, increased awareness of access to justice and successful media campaigns all fuelling the trend, say the DAC Beachcroft lawyers.
“Social inflation, the US phenomenon that is driving increased claims costs, will become a global trend and foreign litigants and claimant law firms will increasingly target UK-incorporated companies in relation to the impact of their operations worldwide. It is also anticipated that there will be an imminent wave of class-action litigation linked to PFAS compounds, which are also known as ‘forever chemicals’ because they do not degrade in the environment.”
Liz Booth is contributing editor of The Journal
Image Credit | Shutterstock
Key risks in 2022
Other issues highlighted by DAC Beachcroft for insurers to be aware of this year include:
Claims relating to the Stamp Duty holiday –
Claims relating to the Stamp Duty holiday – Pressure to complete property transactions quickly to capitalise on the Stamp Duty holiday is likely to have led to mistakes. This could lead to professional negligence claims being made against conveyancers, with insurers being asked to reimburse the entire property purchase. Conveyancers may also face claims for having missed the cutoff point for the holiday.
Concussion litigation in rugby and other sports– A lawsuit against World Rugby and Rugby Football Union relating to claims that nine players developed chronic traumatic encephalopathy from playing the sport could have significant ramifications. Would a successful claim lead to similar claims in other sports? In addition to the potential financial impact on sports, the outcome could force insurers to limit exposures or adjust premiums.
SPAC securities class actions – A growing number of class-action lawsuits relating to special purpose acquisition companies (SPACs) are being filed before the merger becomes effective. Previously, they were limited to before the de-SPAC transaction was completed. Cases often derive from claims that acquisition targets misled investors about the financial viability of their product. Given the high levels of M&A activity, corporates will need to ensure that insurance policies offer protection throughout all stages of the transaction.
Growing number of ransomware attacks – 2021 was a record year for cyberattacks, with the number of incidents doubling from the previous year. This has led to capacity issues within the cyber insurance market. Despite the number of products increasing, many insurers expect premiums to remain high, following a 73% increase in Q3 2021.