Exploring the next wave of emerging risk

As the insurance industry looks ahead, various emerging risks continue to reshape the landscape for underwriters, claims professionals, and risk managers alike. From the escalating impacts of climate change and global supply chain disruptions to the rise of automated vehicles and evolving U.S. legal doctrines, insurers must navigate an increasingly complex and interconnected risk environment.

In this article Neil Beresford summarises how these developments are influencing underwriting strategies, regulatory compliance, and claims management - before exploring the topics even further as part of our research led Emerging Risk series.

Climate Change: An escalating challenge for the insurance sector

Now is a good time to take stock of climate change and its implications for the insurance sector. The principal risks are well-known.

Natural Catastrophes: The marked increase in natural catastrophes has had a serious effect on the property and business interruption markets. In many cases, insurers are unable to increase premiums to appropriate levels, creating an urgent need for alternative solutions.

Climate Litigation: It continues to advance in scale and ambition. Courts are beginning to issue decisions on the application of insurance coverage to climate litigation.

Regulatory Developments: U.S. states are launching Climate Superfunds, while global scrutiny intensifies following COP29 and the upcoming International Court of Justice ruling.

Corporate Disclosure: Climate due diligence and ESG reporting are creating new challenges for insurers, especially amid a growing anti-ESG movement.

Automated vehicles in motion: Where are we now?

The technological landscape has changed significantly over the past few years for automated vehicles.

• Robotaxi services have been deployed in cities across the United States, China, South Korea and the UAE. Some offer fully autonomous rides without safety drivers, while others still include human monitors.
• As sensor technologies, such as LiDAR and radar, have improved, European manufacturers have begun deployment of Level 3 automation.
• Trials for autonomous trucks have commenced, marking a new chapter in the commercial deployment of autonomous technology.

Nonetheless, progress has not kept pace with initial forecasts. The shocks of the global pandemic and the transition to electric vehicles have imposed economic pressures upon manufacturers and there is a lack of available capital to support development.

S&P forecasts that, even by 2034, autonomous vehicles will represent less than 1.5% of US market share.

Regulatory constraints are also holding back the sector, in particular:

• The absence of comprehensive US federal regulations and a patchwork quilt of state regulation.
• Federal Motor Vehicle Safety Standards (FMVSS) which were developed for traditional vehicles with steering wheels and pedals.
• Gaps in safety validation and risk assessment.
• Divergent international standards.

Supply Disruption: A rising risk

Supply disruption is increasingly recognised as one of the top emerging risks facing global businesses. Defined as an unforeseen event that disturbs the normal flow of goods and materials, supply disruption take many forms including:

• Financial risk, such as currency movement or insolvency.
• Geopolitical instabilities causing disruption to trade and the movement of materials.
• Failures of cybersecurity and malicious disruption.
• Environmental risks, such as extreme weather event cutting off established supply routes.

Supply disruption impacts insurers in specialist markets such as trade credit, but also in mainstream sectors. Business interruption risks may be aggravated by price fluctuations ad the failure to receive supplies. Product liability risks may be aggravated by low-quality substitute products being released to market.

In extreme situations, D&O policies may be affected by securities class actions and corporate failures prompted by severe disruptions of supply.

North American Legal Doctrines

In North America, tort claimants are increasingly teaming up with insureds to create insurance-prejudicial plans of reorganization designed to increase insurers' liability and impair their ability to defend claims. This was recognized by the US Supreme Court in Truck Ins. v Kaiser Gypsum, but the remedies remain an open question. The principal challenges include:

• How to resolve insurers' exposure in light of the Purdue Pharma case and the use of pre-packaged reorganization plans.
• Challenging prejudicial trust distribution procedures and insurance 'findings'.
• Bankruptcy claims fraud.

Counsel for the insured are also deploying conflict of interest rules to deny insurers access to defence information. In Canada, the 2024 Loblaw decision change the landscape or liability insurers on the payment of the defence costs, conflict of interest and an insurer's entitlement to defence information. It has prompted some insurers to change their policy terms and established claims handling practices.

As insurers confront a rapidly evolving risk landscape, adaptability and foresight have never been more critical. Climate change, supply chain fragility, technological disruption, and shifting legal frameworks are no longer distant threats. As Neil Beresford outlines, understanding these risks is just the beginning.

Explore our global Emerging Risk webinar series, where our team offers practical insights and expert perspectives to help insurance professionals stay ahead of the curve in 2025 and beyond. Coming up soon… register your interest below today!

• Climate Change: Friday 19 September, 2pm
• Supply Disruption: Friday 24 October, 2pm
• Automated Vehicles: Friday 21 November, 2pm
• North American Legal Doctrines: Friday 19 December, 2pm