On a planet inhabited by more than 7 billion people, injury and loss arising from environmental factors and human behavior are inevitable. Surveys conducted by some of the world’s leading insurance industry organizations offer lists of the risks with the greatest impact, ranging from business interruption, market developments and damage to reputation, to cyber incidents, third-party liability and natural catastrophes. What is becoming clear is that these top risks increasingly are interconnected and have significant ramifications when viewed through the lens of risk management and insurance. This report explores these interconnections in greater depth, along with some of the legal consequences they can engender.
Complexities and connections Risk is dynamic. Global risks are increasingly complex, and change is accelerating. For example, what happens in one location can have severe, near-immediate implications on the other side of the globe. Advances in transportation and communication have in essence made the world smaller. It is easier today to conduct business across the globe than in the past, a development that has fueled both opportunity and exposure. Even seemingly isolated domestic events, depending on their nature, can have widespread impact. When loss occurs, recovery efforts – whether through insurance claims or litigation against a responsible party - can become quite complicated. Enforcing contract terms and conditions with suppliers and business partners can be daunting, especially when they cross international borders. The expectation of quick resolution of disputes is often adjusted downward once parties see clearly the challenge of pursuing or defending international litigation. Consider, for example, the following incidents and their outcomes: March 11, 2011: A magnitude 9.0 earthquake strikes Japan, triggering a massive tsunami. This catastrophe, one of the strongest quakes ever recorded, claimed more than 15,000 lives and caused economic losses of at least $300 billion. In addition to causing a meltdown at the Fukushima Daiichi
Many of the world’s most pressing risks, according to various polls of business leaders, are beyond the power of organizations to control. It is difficult, if not impossible, to predict – much less avoid – natural perils such as earthquakes, floods and wildfires. The effects of such perils are carefully analyzed and inform sophisticated catastrophe models, but the insurance industry and scientists still struggle to determine exactly where and when such events will occur. Likewise, human activity is inherently challenging to forecast. Fortunately, some elements of the risks cited as the most worrisome can be mitigated through insurance and risk management. Strategy-minded organizations therefore should take steps to control what risks they can. A fundamental method of controlling risk and mitigating loss from human or natural causes is provided by the global insurance industry. Through an array of products and services, the industry offers individuals and organizations tools to analyze, reduce and transfer risk. Underpinning these products are legal contracts designed to respond to policyholders’ needs while creating parameters for the insurer’s business commitments. Claims are paid in accordance with the terms and conditions agreed in the insurance policy. Insurers and policyholders, however, must adapt to changes in the business environment and to evolving risks.
1
Made with FlippingBook HTML5