Everywhere we look, we can count the costs incurred from emerging risks. The pandemic has triggered heightened exposure globally. According to Aon’s Reprioritizing Risk and Resilience report, at its peak, 77 percent of the global business community experienced costs and losses associated with supply chain disruption. The International Monetary Fund estimated the first year of the pandemic cost the global economy $27 trillion. Cybercrime is thriving — with ransomware attacks up 400 percent from the first quarter of 2018 to the fourth quarter of 2020, according to Aon’s 2021 Cyber Security Risk Report. At the same time, Aon’s 2021 Weather, Climate and Catastrophe Insight report found economic losses as a result of natural disasters, many of which were exacerbated by climate change, were 27 percent above the 21st century average, at $343 billion.

These new forms of volatility are evolving and shaping the way organizations make decisions. In some cases, they emerge from established risks that are changing and accelerating; in others, they arise from genuinely new exposures. For business leaders and risk professionals there is pressure to understand, size and treat these risks. For the insurance industry and other providers of capital, there is a race to innovate and develop solutions for the growing proportion of the risk portfolio that is uninsurable.

In this, our last Global Market Insights report for 2021, we see clearly how new forms of volatility are impacting market trends and dominating the risk agenda:

• The pandemic-driven uncertainty that served as one of the key drivers of recent price increases, underwriting conservatism and capacity constraints has largely subsided; however, economic, industry and organizational recovery continues, and pandemic-related exclusionary language persists.
• Cyber risk — especially, ransomware — is growing in complexity and volatility and, as insurer appetite adjusts, coverage options and pricing models continue to evolve.
• Insurer profitability — strained not only by loss frequency and severity but also by a prolonged low-interest-rate environment — is strengthening in some key market segments, leading to changes in risk appetite and deductibles and a shift in focus from portfolio remediation towards profitable growth.
• Insurers are becoming increasingly focused on Environmental, Social and Governance (ESG), looking carefully at their own, their clients’ and their business partners’ environmental, social and ethical risks that can arise from myriad complex, interconnected factors related to the evolution of business practices and operations.

What common characteristics link these new forms of volatility, and what techniques can be deployed to understand them better? Amid talk of challenge, we examine how some companies are finding ways to assess, quantify and treat emerging risks and the benefits that this delivers – not just to their risk financing strategy but to their ability to take calculated risks and maintain their reputation.

I am proud to lead Aon’s 1500-strong global team of risk consultants. The team helps clients identify and quantify risk, select and implement strategies around risk transfer, retention and mitigation, and provides post-loss consulting. We work across a portfolio of legacy and emerging risks, and our solutions are underpinned by data and analytics. I hope you find this edition insightful. Please get in touch if you would like to discuss how we can support you in addressing this new and emerging risk landscape.